PE investments in real estate have been on a rise since 2014 and it is growing every year. In INR terms, the investments have crossed the previous peak in 2007 by a good margin in 2016 itself.
However, the situation in this optimism is different than the one in 2007. The investment style is more towards long-term investments rather than opportunistic investments as in 2007 period.
The focus is more on track record and corporate governance of the developer partner compared to returns earlier. Investors are still remaining cautious in terms of equity in residential projects compared to free funding to any and every available opportunity in the previous phase.
But the key difference in this phase is the geographical spread of investments. In 2005 – 2008 phase, as high as 37 cities received investments which include places like Pondicherry and Kakinada.
Investors reached all the places that could offer good returns. Unlike that, post-2009, investors have largely stuck to top 7 cities with higher concentration to top 3 cities of Bangalore, NCR, and Mumbai and categorically stayed away from other cities.
Going forward, once the opportunities saturate in the top 7 cities, investors will start considering going beyond top 7. With RERA implementation and other government activities, the transparency in the sector is set to increase to boost investor confidence regarding investing in cities beyond the conventional ones.
However, we expect investors to remain cautious and study the cities and the developer partner in depth before entering into any deal. Also, while we expect investors to expand their horizon again, it will still be limited to the larger 7 or 8 cities, in addition to the conventional choices.
But for that, the developers in such cities need to be ready to have a track record that can fit in the investment criteria of the funds.
Shobhit Agarwal is MD & CEO – ANAROCK Capital.