PE deals in real estate drop by 15 % in Jan - Sep 2012

Mumbai: The first three quarters of 2012 witnessed a fall in the quantum of private equity investments in the real estate sector.

According to the latest Investment market report from real estate consultancy Cushman & Wakefield, India, the private equity investments, recorded at Rs3,500 crore, is approximately 15 per cenet lower than same period last year. The total number of private equity transactions till date in 2012 is 23, marginally lower when compared to same period last year.

Of the total investment in first three quarters of 2012, the first quarter saw majority of the investments at Rs2,100 crore while the remaining two quarters recorded Rs1,380 crore.

While the second and third quarters witnessed a drop in investment volumes, the real estate sector continued to attract investments at a steady pace during the year.

Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield, says, ''The Indian real estate sector has seen a drop of 15 per cent in private equity investments in the first three quarters of the calendar year 2012 compared to a year ago. The reason for the fall in number of deals was mainly due to a lot of concerns on the government policy front coupled with an uncertain investment scenario, valuation and continued focus on exits for some vintage funds.

However, Dutt feels the recent policy initiatives, opportunities in key markets such as the National Capital Region, Mumbai, Pune, Bengaluru and Chennai should turn things around in the coming quarter and make up for the shortfall.

He says, "Of the total 1,380 crore invested, Mumbai continued to be the preferred destination for private equity investments followed closely by Bengaluru and NCR. The residential segment witnessed the maximum private equity investments with the share of deals of the total private equity investments increasing by 9 per cent in first three quarters of 2012 compared to 2011. Income yielding office also continues to interest & attract investors.''

Most of the deals in 2012 were executed through special purpose vehicles (SPV) in contrast to last year where investments were witnessed in both entity and SPV level as they provide greater transparency and accountability along with ease of exit.

During YTD 2012, Mumbai continued to be the preferred destination for private equity investments followed closely by Bengaluru and NCR for the year 2012. The three major cities have received majority of investments over the years. However, their share had reduced from 84% in the first three quarters of 2011 to 78% in same period this year. Other cities including Pune, Chennai and Hyderabad have witnessed steady interest from private equity investors.

The residential segment witnessed maximum private equity investments at Rs2,060 crore during the first three quarters of 2012. The share of residential deals of the total private equity investments has increased by 9 per cent in first three quarters of 2012  over same period of 2011, although the quantum of investments have been similar during the two periods.

The office segment also continued to attract investment with a higher number of deals over last year.

However it saw a decline in investment volume by 12 per cent during the first three quarters of 2012 compared to same period last year due to lower average deal size.

Approximately Rs6,100 crore of the private equity investment in real estate during 2012 was in leased commercial assets, considerably lower than the same period in the previous year that saw investments of Rs1,500 crore.