The private equity (PE) graph in India’s real estate sector is growing as high as its skyscrapers. The first five months of 2008 have PE commitments in Indian real estate companies surpassing the total PE investments committed in the whole of 2007, which is $3 billion.
Experts say PE funding in the second half of the year will be even more. This is a good time for PEs to invest as there is a liquidity crunch and valuations of many real estate players are down. PEs also expects a further lowering of valuations, somewhere in the tune of another 20%. Even as private equity money comes into the market, there are concerns among investors about the execution capabilities of many of developers.
The months since January haven’t been too conducive for the real estate market in India. Real estate stocks plummeted as the stock market crashed January onward. Many real estate players have been feeling the liquidity crunch and this is where private equity funds have an opportunity to cash in. This is a good time to close deals and scout for more at lower valuations.
Mr. Jagdeep Pahwa, India Investmetn Management director said that a lot of the deals that were closed this year may have started negotiations sometime last year. They closed a $150 million deal with Maytas Properties in February 2008 but the negotiations were on since the third quarter of last year. He further explains, “Earlier, people could tap debt as well as the public market, both of which have dried up today. PE is today more available versus the other two. Deals that are happening today have a higher component of preferred returns which offer a form of downside protection to the investor”.