Foreign funds account for 60% of PE investments in realty in 2017

Foreign funds accounted for 60 per cent of investment by private equity (PE) entities in real estate during 2017, says a study.

"Like 2017, we expect foreign investors dominating investment volume in 2018, with office and industrial sectors in focus. With the Goods and Services Tax in place and the recently accorded infrastructure status for logistics, the industrial and warehousing sector has become an attractive proposition," said Anshul Jain, country head at Cushman & Wakefield.

While the residential sector continued to get the largest share of investment, the amount declined by 29 per cent from a year before, to Rs 156 billion.

"Offshore investors are appreciating the increased transparency in residential properties due to new reforms, tax breaks and so on, while domestic investors are still focusing on equity markets," said Rubi Arya, vice-chairperson at Milestone Capital, a property fund manager.

Arya said both offshore and domestic investors are investing in the office market.

The promoter stake sale in DLF Cybercity, rental arm of DLF, to Singaporean fund GIC helped investment in office properties to rise from Rs 40 bn in 2016 to Rs 132 bn.

During 2017, PE inflow into real estate touched a nine-year high at Rs 428 billion, a rise of 17 per cent from the previous year, Cushman said. The jump comes on the back of a three-fold rise in investment in office segment, signalling heightened interest of institutional investors in pre-leased office assets, Cushman said.

Mumbai saw the highest investments during the year with almost Rs 150 bn, a 41 per cent increase over the previous year. Bengaluru surpassed Delhi-NCR for the first time since 2008, to attract the second-highest PE real estate investments.

According to a earlier report of Knight Frank, PE funding has replaced bank credit in real estate and largely moved towards quasi-debt deals. "About 60 per cent of real estate sector's institutional funding needs are met through the PE route, in sharp contrast to 2010, when a fourth of funding came through this route," Knight Frank said.