Mumbai’s Office Assets Capture 40% PE Investments: Report
Residential real estate may see good times ahead given that private equity investments have seen a record growth of 36 per cent and reached Rs 59,100 crore in 2017 from merely Rs 17,200 crores in 2014, says report released by a leading real estate advisory. The financial capital of India, Mumbai, has received the highest percentage share of these total PE investments. It leads with investment of over Rs 23,400 crore, capturing about 40 per cent of the total. Office assets in Mumbai seem to have a good pick-up. This in turn could be good news for homebuyers given that such PE funds is an indicator that businesses are confident about the performance of the market. This may generate jobs and add to residential housing demand.
Ease of doing business, relaxation in foreign direct investment norms, introduction of the Goods and Services Tax (GST), and defining norms for Real Estate Investment Trusts (REITs) listings have aided these investments. Office assets are the biggest attraction followed by warehousing and retail.
The report also says that the average investment per deal has gone up by 2.5 times, that is from Rs 270 crore per deal in 2011 to Rs 700 crore per deal in 2017.
Do note that investors have shown an interest in the commercial sector given that residential real estate is slowly recovering from the slump. Meanwhile, the commercial sector has been witness to good days and better returns in the last few quarters. Also, ready possession property has seen significant traction. The report claims that 89 per cent of the total office investment was into this segment.
Capitalisation rates which is an indicator of returns is however down to 7.5 to 8.5 per cent in 2017 for good quality rent yielding retail assets. Previously, cap rates stood at 10-12 per cent.
The report also states that the next set of opportunity for PE in real estate includes making the Non-Performing Assets perform. Meanwhile, there is also a need to stand by construction norms and rules. Given that the Indian property market has witnessed interest from global investors, it is important to ensure that the assets possess the quality and adhere to the rules of construction.
Green buildings have also been widely accepted and while these assets have not matured up to its potential in India, it is time that developers understand the merit and opt for these although the initial costs may be high.
With inputs from Housing News