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Private Equity (PE) Flows In The Indian Realty Sector In 2008 At 2007 LevelsBy ugesh sarkar, Section Finance & Taxes
Private Equity (PE) investments in the Indian realty sector in 2008 may turn out to be about the same as last year. But with domestic property sales clearly slowing, PEs may be investing in tranches and ramping up their return expectations, to make up for the risk.
The number and value of PE deals in the realty sector over the 10 months ended October 2008, has not seen any significant slowdown. According to data provided by Venture Intelligence, a research service focused on Private Equity & Venture Capital, about 75 deals valued at $7.3 billion (Rs 35,600 crore) were made in the real estate sector. By the end of the year, the value of deals may turn to be about the same as last year. For the whole of 2007, the realty sector saw PE deals valued at $8.7 billion, a number 19 per cent higher than the deals tied up so far in 2008. Arun Natarajan, Founder and CEO, Venture Intelligence, agrees that the volume of private equity investments flowing into realty may be the same as in 2007. "However, if one looks at the year-on-year growth, it has slowed now compared to 2007 over 2006," Natarajan said. In the context of property price declines and shelving of projects by some developers, private equity deals of $7.3 billion this year do not paint a particularly gloomy picture. However, the credit crunch being faced by the developer community continues to suggest that not all of the fund flows, indicated by the above deal value, may actually materialise. Click on "Full Story" For More...
According to Anurag Mathur, joint managing director, India, Cushman & Wakefield, the amounts stated in the deals may not have been fully deployed as yet. "We have seen that many projects that have PE deals have not progressed, suggesting that inflow of money may not have necessarily happened," Mathur said.
As private equity investors continue to evince guarded interest in the Indian market, their return expectations could well be re-aligned to suit the higher risks entailed by the current scenario. Factors such as the Internal Rate of Return (IRR) and the time frame within which PEs would want to achieve their target, may change. According to Ramesh Nair, MD, Chennai region of realty consulting firm Jones Lang LaSalle Meghraj, many private equity funds have started insisting on 25 per cent-plus IRRs in the last few months. If this be given, the realty developers could find private equity funding too to be an expensive proposition. Source: Realty Plus 22/Nov/2008
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