PE Inflows In Retail Hit 5-Year High In 2019 With USD 970 Mn

  • Total inflows in the retail sector close to USD 970 mn in 2019 over USD 195 mn in 2015; 2019 inflows highest in five years (2015-2019)
  • Of total PE investments of USD 5 bn in Indian real estate during 2019, retail comprised 19% share; retail’s share in 2018 was a mere 7%
  • UAE-based Lakeshore & ADIA bet big on Indian retail sector in 2019; US-based Blackstone remained top investor between 2015-2017
  • Delhi-NCR received 63% funds of the total USD 970 mn PE inflows in Indian retail in 2019, followed by Hyderabad with a 20% share  
  • Overall PE inflows in Indian retail touched USD 2.8 bn in 5 years
  • PE investments in the retail sector were not limited to Tier 1 cities – Tier 2 & 3 cities comprised 36% share of total PE inflows since 2015

Despite tepid consumer spends, the total PE inflows into Indian retail hit a new high in 2019 among all five years between 2015 to 2019. Total retail-focused PE inflows touched USD 970 mn in 2019 – a 19% share of the total USD 5 bn in overall Indian real estate, reveals research by ANAROCK Capital.

Shobhit Agarwal, MD & CEO – ANAROCK Capital says, “Back in 2018, retail inflows stood at a mere USD 355 mn, comprising just 7% share of the total PE funds. In the previous five years, after 2019, the year 2017 saw the second-highest PE inflows in retail at USD 890 mn. Interestingly, in 2019, Delhi-NCR received the maximum PE inflows of about USD 610 mn – a massive 63% share of the total retail funds into Indian realty during this period.”

“While commercial offices topped the funding charts, the retail sector witnessed the second-highest investments from various PE funds in 2019,” says Agarwal. “Compared to 2018, total PE inflows into Indian retail saw an almost three-fold jump in investments – from USD 355 mn in 2018 to over USD 970 mn in 2019. Investors are betting big on selected Grade A mall projects which have a high scope of business profitability. Despite the consumption slump, many malls are doing excellent business today – and investors are keenly vying for such projects.

PE funds see the ongoing consumerism slump in India as a seasonal phenomenon and that the enthusiastic government backing to the retail sector will cause the tide to turn in the near future.

Apart from the top cities, Tier 2 & 3 cities are also on the radar of many PE funds which see these cities actively driving retail going forward. At least 36% (nearly USD 1 bn) retail-focused funds went to cities like Ahmedabad, Amritsar, Bhubaneshwar, Chandigarh, Nagpur and Mohali.

In 2019, ANAROCK Capital was instrumental in Virtuous Retail South Asia (a JV between Singapore’s PE firm Xander Group and Dutch institutional investor APG) concluding a USD 100 mn deal with TRIL for two retail malls – one each in Nagpur and Amritsar.

Overall PE inflows in Indian retail touched USD 2.8 bn in the five years between 2015 and 2019 – fairly close to the residential segments’ total PE inflows of USD 3.4 bn in this period.

Cities Attracting PE Investors

  • Delhi-NCR received the maximum retail-focused PE inflows between 2015-2019 – more than USD 750 mn.
  • MMR was second with USD 410 mn funnelled into retail over the last five years
  • Pune saw PE inflows of nearly USD 150 mn in the retail segment.
  • Bangalore retail saw total PE investments of USD 275 mn since 2015
  • Hyderabad and Chennai together attracted close to USD 230 mn during the same period.
  • Chandigarh was a major funding target for US-based Blackstone which invested USD 340 mn in a single large deal in 2017.
  • Ahmedabad also drew the attention of PE investors and saw its retail sector draw nearly USD 220 mn in the last five years.

Key PE Deals in Indian Retail – 2015-2019

Investor Investee Deal Amount approx. (in $ mn) City
DCCDL DLF             420 Noida
Blackstone Carnival Group             340 Chandigarh
Blackstone L&T Realty             220 Navi Mumbai
Blackstone Kalani Group             190 Indore
APG Virtuous Retail South Asia             175 Bangalore
Blackstone Alpha G: Corp             155 Amritsar & Ahmedabad
GIC Sheth Developers             150 Mumbai

Source: ANAROCK Research

 

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FLUX – ANAROCK Capital’s Year-End Market Monitor for Capital Flows in Real Estate

According to FLUX – ANAROCK Capital’s Year-end Market Monitor for Capital Flows in real estate, big-ticket investments were largely concluded by foreign PE investors.

PE investments in the country continued to stay healthy; a marginal 2% decline over the previous year. Commercial assets have remained the key attraction for PE investors over the past few years.

Investments in retail jumped sharply in 2019 and are expected to continue to do so in 2020. Stressed funds started considering residential assets. 2020 will see many last-mile funding deals in the residential space.

ANAROCK Capital Market Monitor

Other Key 2019 Highlights:

  • Last-mile funding – a correct step towards reviving the residential space
  • Income yielding Grade A assets drew the majority of equity investments
  • Alternative asset classes witnessed interest
  • Total real estate loan equals USD 93 Bn, over 62% completely stress-free

Click here to access the report

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Over $5 Bn Private Equity in Indian Real Estate in 2019, MMR and NCR Top Favourites

  • The two megaregions comprised 53% share of total PE inflows (approx. USD 2.7 bn)
  • PE inflows in NCR rose massively from ~ USD 195 mn in 2018 to ~ USD 845 mn in 2019
  • PE continued focus on commercial real estate, pumped in over USD 3.3 bn (though inflows fell annually by 13% against 2018)
  • Residential real estate saw some green shoots of revival with inflows touching USD 395 mn in 2019 against USD 265 mn in 2018; 2020 could see even more interest
  • The retail sector received close to USD 970 mn PE funds in 2019 against USD 355 mn in 2018
  • Blackstone remains bullish on Indian real estate, pumps in over USD 1.8 bn in 2019 over USD 1.1 bn in 2018

Shobhit Agarwal, MD & CEO – ANAROCK Capital

Mumbai, 8th January 2020: Indian real estate attracted more than USD 5 bn private equity inflows in entire 2019 – recording a marginal drop of 2% against the preceding year – reveals ANAROCK’s latest study.

MMR and NCR were the top favourites for private equity investors in 2019; together, the two regions received close to USD 2.7 bn PE funds, comprising a whopping 53% overall share.

Previously in 2018, rather than NCR, it was Hyderabad that was on top in the radar of private equity investors.

The commercial segment continued to lure investors in 2019, with total PE inflows crossing USD 3.3 bn – though reducing by 13% on a yearly basis. Meanwhile, both the retail and residential segments saw an uptick in investments in 2019 against the preceding year.

Total PE inflows in Indian real estate remained more or less the same in 2019 against 2018. However, NCR once again emerged as a major hotbed for private equity activity in 2019. Besides office real estate, the retail sector helped NCR gain traction from both foreign and domestic funds.

Notably, in 2019, other than commercial real estate, the retail segment also garnered considerable attention from private equity, based on the high demand for organized retail spaces across the country.

Residential saw some green shoots of revival in 2019 and this will continue in 2020 as the Government’s distress funds are deployed.

In sharp contrast to previous years, investors are now showing a keen interest in last-mile funding for stuck/delayed residential projects. This, along with the Government support of INR 25,000 crore for stressed projects, will go a long way in relieving residential real estate from its woes.”

Segment-Wise PE Inflows

  • Commercial real estate maintained its numero uno position, attracting USD 3.3 bn of PE funds in 2019 as against USD 3.8 bn in 2018
  • The retail sector was a major draw for PE funds in 2019, receiving total PE inflows of USD 970 mn in as against USD 355 mn in 2018 – an annual rise of over 170%
  • The residential sector received PE inflows of USD 395 mn in 2019 against USD 265 mn in 2018.
  • The high potential of logistics and warehousing notwithstanding, this segment attracted about USD 200 mn PE funds – a drop of nearly 50% against the previous year.
  • Mixed-use developments saw inflows of approx. USD 155 mn in 2019, as against USD 310 mn in 2018

City-wise Trends

While MMR remained the hottest investment destination for private equity funds, it was NCR that stood out in 2019. After MMR, the national capital region was the second-most attractive real estate destination for private equity players.

Together, the two megaregions received PE inflows of USD 2.7 bn – a massive 53% overall PE share – in Indian real estate in 2019.

  • MMR saw a 19% jump in total PE inflows in 2019 – from over USD 1.5 bn in 2018 to more than USD 1.8 bn in 2019.
  • NCR stood out with total PE inflows of over USD 845 mn in 2019 as against just USD 195 mn in 2018.
  • The IT hubs of Pune and Bangalore attracted private equity funds of approx. USD 390 mn and USD 615 mn respectively in 2019. Both cities saw inflows rise by 210% and 47% respectively in a year.
  • Hyderabad – the showstopper of 2018 – attracted private equity funds of just USD 440 mn in 2019 against USD 1.1 bn in 2018. This drop was expected as 2018 was a one-hit-wonder rather than a steady trend.
  • PE players largely steered clear of the Chennai real estate market in 2019 – the city saw inflows decline by 45% in a year, from USD 675 mn in 2018 to USD 370 mn in 2019
  • Kolkata failed to garner any PE interest in 2019 as well. There were no investments in both the years.

Top Deals of 2019

Key Deals of 2019

Source: ANAROCK Research

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USD 8.7 bn of MMR’s Realty Loans Severely Stressed, Double of NCR

Bangalore pips MMR & NCR in servicing realty loans, only US$ 160 mn under stress

  • Of total ‘severely stressed’ loans of approx. USD 14 bn in Indian real estate, MMR & NCR together hold a 91% share
  • Overall loan advances given to builders in MMR is USD 35 bn; in NCR it is over USD 23 bn
  • Bangalore received total loan advances of USD 16 bn, has a mere 1% (USD 160 million) under ‘severe’ stress
  • Pune, Hyderabad & Kolkata each received realty loan advances worth USD 3.7 bn, of which merely USD 370 mn is collectively under ‘severe’ stress
  • ‘Severe’ stress implies high leveraging by developers with poor visibility of debt servicing

Shobhit Agarwal, MD & CEO – ANAROCK Capital

 Of the total 35 bn loan advances given to developers in MMR, nearly USD 8.7 bn (or 25%) is currently under ‘severe’ stress.

This is exactly double of the total stressed loan amount in NCR (at USD 4.3 bn), finds ANAROCK’s latest research. The NCR real estate market has so far received total loans worth USD 23 bn from banks and NBFCs/HFCs.

Bangalore pips both these markets in terms of the existing stressed loans. Merely 1% (USD 160 million) of the total USD 16 bn of real estate loans in the city are in the ‘red alert’ category – the result of the better financial discipline of the city’s developers, lower demand/supply mismatch and range-bound property prices to ensure gradual rather than haphazard growth.

The liquidity crunch in the country’s top 2 real estate markets – MMR and NCR – is unrelenting. Both markets collectively have loans worth USD 13 bn under ‘severe’ stress with extremely poor prospects of recovery from the borrowing developers.

Previously, many developers engaged in high leveraging and also engaged in fund diversions. To compound the problem, housing sales have remained tepid over the last few years, resulting in depleted cash reserves.

Bangalore supersedes NCR and MMR markets in servicing its debt to banks, NBFCs or HFCs. The city has much better stress-level readings with over 70% (of the total USD 16 bn loans) completely stress-free. In NCR, the stress-free share is at 53% and in MMR, it is 58% of the total loan advances.

City-Wise Stress Analysis

Of the total real estate loan of USD 93 bn, NCRMMR and Bangalore together account for a whopping 80% share (USD 74 bn).

Of the overall loan amount extended to real estate, USD 14 bn (or 16%) is under ‘severe’ stress while nearly 62% (approx. USD 58 bn) is completely stress-free. The remaining 22% or USD 21 bn loan amount is under pressure but can potentially be resolved.

At the city-level, the two leading realty markets – NCR and MMR – have a 91% share of severely stressed loans totalling USD 13.2 bn. Hyderabad and Kolkata have hardly any stress – however, their share in the overall realty loan advances is also quite limited.

  • MMR received the maximum loans worth over USD 35 bn, of which nearly 25% or USD 8.7 bn is under ‘severe’ stress, while 58% is completely stress-free. Another 17% (close to USD 6 bn) is under pressure but can be resolved.
  • NCR received total loans of USD 23 bn, of which nearly 19% (nearly USD 4.3 bn) is under ‘severe’ stress category and approx. 53% is stress-free.
  • Bangalore received total real estate loans worth USD 16 bn, of which merely 1% or USD 160 million is in the ‘red alert’ category. A massive 70% of the total loan amount is entirely stress-free.
  • PuneHyderabad & Kolkata each received realty loans worth USD 3.7 bn, of which nearly USD 370 mn is under severe stress. Interestingly, no loan amount in Hyderabad is under severe stress.
  • Chennai received loan advances worth USD 2.8 bn, of which merely USD 310 mn is under severe stress.
  • Other smaller cities collectively received loans worth USD 4.7 bn, of which USD 470 mn fall in the red alert category.
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Total Real Estate Loan Equals $93 Bn, Over 62% Completely Stress-Free: ANAROCK

  • Another 22% under pressure but with high scope for resolution and certainty on principal recovery
  • Merely USD 14 bn worth loans under ‘severe’ stress
  • NBFCs & HFCs together account for 66% total loans while banks consist 34%
  • Of the total, Grade A builders received over $65 bn worth loans, followed by $27 bn to Grade B & mere $1 bn to Grade C developers
  • At least 72% of total lending to Grade A developers is completely safe while a large portion to Grade B & C developers needs strict monitoring
  • In ‘real value’ terms, overall stressed loan amount in Indian real estate still minuscule compared to other major sectors like telecom and steel where default by one company alone equals sizable portion of stress in entire real estate

Mumbai, 2nd December 2019: Over 62% or approx. USD 58 bn of the total loan advances (USD 93 bn) to Indian real estate by banks and NBFCs/HFCs is currently completely stress-free reveals a study by ANAROCK Capital.

Another 22% (approx. USD 21) bn is under some pressure but can potentially be resolved. In fact, the stress on this segment is largely on recovery of interest and not on the principal amount.

USD 14 bn (or merely 16%) of overall lending to Indian real estate is under ‘severe’ stress, meaning that there has been high leveraging by the concerned developers who have either limited or extremely poor visibility of debt servicing due to a combination of factors.

Shobhit AgarwalShobhit Agarwal, MD & CEO – ANAROCK Capital says, “The ‘stress’ loan amount in real estate is not as bad as seen in other major sectors like telecom and steel. For instance, the entire ‘severe stressed’ loan value in real estate is spread across more than 50 developers. In the telecom or steel industries, default by a single company alone equals a sizable portion of the overall stress in the real estate sector. Also, every real estate loan is backed by hard security, which is anywhere between 1.5 times to 2 times. Even if the loan is NPA, there is enough security for the lenders to get a significant portion of their money back. Even if defaulting developers decide to sell their real estate at a discount, there is enough margin for them to pay back.”

Meanwhile, HFCs accounted for the largest share of total realty loans equalling 38%, followed by banks which comprised nearly 34% share while NBFCs have 28% (including loans given under trusteeships).

Of these, banks and HFCs are much better placed with 70% and 65% of their lending book in a comfortable position. However, it also comes as no surprise that nearly 58% of the total NBFC lending is on a watchlist.

“In retrospect, there has been continuous shrinkage of lending to Indian real estate in recent years by both banks and NBFCs/HFCs amidst non-repayment of some loan dues and NBFC crisis post the IL&FS default,” says Agarwal.

“One prime reason was that sluggish residential sales over the last few years completely dried up cash flows for many developers, resulting in unsold inventory pile-up and, thus, their inability to service their loans. Moreover, some developers have even filed for bankruptcy in the backdrop of stricter regulatory norms under RERA.”

However, with both banks and NBFCs/HFCs now doing their due diligence before giving loans to developers, the situation is gradually getting ironed out. Nearly 84% of the overall loan amount has little or no stress at all.

Going forward, residential sales are likely to pick up due to multiple measures being taken up by the government to relieve the sector. This fact itself will help developers to repay their loan dues.

Realty Loans Breakdown: Builder-Type Wise

On further analysis of the overall realty loans with respect to builder-type, it emerges that out of the total USD 93 bn realty loans, Grade A builders received over $65 bn loan advances, followed by $27 bn to Grade B players – and a mere $1 bn to Grade C developers.

This presents a relatively safe outlook because more than 72% of the loans given to Grade A builders is safe and under no stress.

On the other hand, a high amount of realty loans to Grade B & C developers needs strict monitoring. Nearly 28% of the loans given to Grade B developers is under ‘severe’ stress while for Grade C developers it is over 19%. However, this collectively equals to less than mere USD 8 bn of overall stressed loan.

Grade A developers are players that are currently active, with an excellent execution track record and having till date developed real estate in excess of 3 mn sq. ft.

Grade B developers include those with an established execution track record having a developable area between 1 mn sq. ft. and 3 mn sq. ft. and are currently active. This category also includes players with an excellent past execution track record but are currently largely inactive

Grade C comprises of players with less than 1 mn sq. ft. developable area.

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$14 Bn Foreign PE Flows To Indian Real Estate In 5 Years, 63% In Commercial RE

  • Domestic PE funds invested just USD 2.4 bn in this period – 71% in residential, 25% in commercial RE
  • Another USD 1.6 bn pumped in jointly by foreign funds and domestic developers/investors
  • Foreign PE inflows into residential space comprised an 11% share – approx. USD 1.5 bn
  • The retail sector attracted USD 1.7 Bn of foreign PE, comprising a 12% share
  • Top foreign commercial real estate backers include US-based Blackstone, Canada’s Brookfield, Singapore’s GIC, Ascendas and Xander; residential investors included Brookfield, GIC, Equis Funds and Warburg Pincus
  • Top domestic funds include Motilal Oswal, HDFC Venture, Kotak Realty, ASK Group and Aditya Birla PE

Shobhit Agarwal, MD & CEO – ANAROCK Capital

Indian real estate attracted nearly USD 14 bn of foreign private equity (PE) between 2015 and Q3 2019, says latest ANAROCK data. 63% (approx. USD 8.8 bn) of the total foreign investments backed commercial real estate.

The residential sector attracted just USD 1.5 bn of foreign PE in the same period, trailing behind even the retail sector which saw cumulative inflows of USD 1.7 bn.

In stark contrast, domestic PE funds pumped nearly USD 2.4 bn into Indian real estate since 2015, of which nearly 71% (approx. USD 1.7 bn) went to the housing sector.

This was a period of considerable stress for the residential segment; domestic funds invested heavily into a sector plagued by issues like delayed/stalled units, low sales and fairly lower yields. This made exiting investments with substantial gains difficult.

The commercial real estate segment, on the other hand, delivered a comparatively stellar performance in the last five years. Steady demand and rising rentals gave foreign investors a decisive edge.

Moreover, the overwhelming response to Embassy Office Parks’ REIT launch – and its superlative performance – saw commercial real estate segment emerge as the bigger draw for investors. Several other large developers are also keen on listing their commercial assets under REITs.

An additional infusion of USD 1.6 bn between 2015 and Q3 2019 was a mix of foreign private equity and funding by Indian developers or investors who collaborated either at project or entity levels. For instance, in 2018, Canada’s CPPIB and India’s Phoenix Group together invested nearly USD 100 mn into a mall project in Bangalore.

Domestic vs Foreign PE Funds

  • Of the total USD 14 bn foreign investments in Indian real estate between 2015 and Q3 2019, nearly USD 8.8 bn went into commercial realty, followed by USD 1.7 bn in the retail sector and USD 1.5 bn into the housing sectorLogistics & warehousing drew over USD 1 bn, and the remaining investments went into mixed-use developments.
  • The reverse played out with domestic funds – of the total USD 2.4 bn they invested in this period, housing drew the lion’s share of USD 1.7 bn (or 71%); commercial came next with approx. USD 600 mn and retail drew just USD 40 mn of domestic funding.
  • The top 5 foreign investors – Blackstone, Brookfield, GIC, Ascendas and Xander – alone contributed 75% of the overall USD 14 bn into Indian real estate. Interestingly, their focus was not limited to the top 7 cities and extended into tier 2 cities like Indore, Ahmedabad and Amritsar.
  • The top 5 domestic funds – Motilal Oswal, HDFC Venture, Kotak Realty, ASK Group and Aditya Birla PE – invested nearly 54% or approx. USD 1.3 bn into Indian real estate. They focused exclusively on the top 7 cities.

Crystal-Gazing Future PE Trends

Indian commercial real estate will continue to attract PE funds as there is high demand for Grade A office spaces across the top Indian cities.

Earlier data indicated that the first three quarters of 2019 alone saw inflows of USD 3 bn in the commercial segment – an increase of 43% over the corresponding period in 2018.

Logistics, warehousing and retail will continue to witness considerable growth on the back of recently-eased policy norms for the retail sector, aimed at boosting growth and attracting more investments.

Over the short-to-mid-terms, the housing sector – which has the greatest need for liquidity infusions – will retain its ‘poor cousin’ status and garner much more gradual attention from wary investors.

Though the FM recently unleashed an alternative investment fund (AIF) of INR 25,000 crore to revive languishing housing projects across the country, investors will watch for actual implementation and deployment.

ANAROCK Capital data indicates:

  • The residential segment drew approx. USD 295 mn PE funding in the first three quarters of 2019 (against USD 210 mn in the corresponding period last year)
  • Though this constitutes an impressive 40% annual gain, investments are still far below the 2015 peak levels of 2015, when housing drew PE investments of approx. USD 1.5 bn.
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The WeWork Debacle: Good, Bad or Inconsequential?

Shobhit Agarwal, MD & CEO – ANAROCK Capital

Coworking giant WeWork has been in the news for all the wrong reasons, and market doomsayers are going to town on the topic. How concerned do we really need to be?

Though WeWork is in aggressive expansion mode across the world, its India operations are a minuscule, single-digit fragment of its global operations.

It continues to position itself as the wave of the future – the last word in community-based offices – and investing in this is WeWork’s primary focus right now.

While its India valuation and future expansion plans may not be deeply impacted by the recently jinxed listing plans, this is not even a statement on the potential of coworking in India.

Still a very nascent segment in this country, coworking nevertheless has massive demand and witnessed a 23% growth in Q2 2019 over the preceding quarter across the top 7 cities.

Embassy Group acquired the franchisee rights of WeWork in India with 80% stake in it, and the coworking vertical is not likely to face any funding challenges. Embassy’s recent successful REIT-listing has given it an upper edge and will work in its favour.

This is not to say that such events have zero impact on the larger market. Consolidations are happening across sectors, including in coworking.

Consolidation within coworking spaces started in 2018 with major acquisitions like One Co.Work  acquiring  IShareSpace  and AltF CoWorking  acquiring Noida-based Daftar India etc. This trend will continue.

As per data, more than 200 players were operating such workspaces (both branded and non-branded) across the country early this year.

If we are to consider the top 6 players in this space, they alone have close to 300 centres across multiple cities in the country. These six players include CowrksWeWork IndiaAwfisRegusSmartworks and 91springboard.

To mitigate leasing risks, many companies are now shifting to a revenue-sharing model instead of leasing. Essentially, coworking operates on three different models – sub-leasing, own-and-lease and revenue-sharing model.

While each has its pros and cons in today’s time, the revenue-sharing model is working out the best for most companies.

Here, the owner/landlord makes the initial investment for office fit-outs for the coworking player and thereafter becomes his business partner. This is proving to be the least risky approach, as both parties share profits based on pre-determined percentages.

Also, the initial investment on fit-outs and office set-up, which tenants would not be able to pay, are borne by the landlord. Most of the clients of co-working spaces are start-ups which invariably have initial funding issues. This is why the revenue-share model works best for them.

As on 2018-end, the total supply of flexible workspaces was anywhere between 7 – 7.5 mn sq. ft. area and is expected to cross 10 mn sq. ft. by 2019-end.

While demand for coworking spaces has seen phenomenal annual growth between 30-40% in previous years, trends suggest that it may grow by a more moderate 15-20% over the next few years.

Coworking properties located in India’s CBD areas have an occupancy of nearly 80-85% at a given time, while in suburban areas it is somewhere between 60-70%. This is probably the reason why all major coworking deals happen in prime locales around the CBD.

In H1 2019, of the total 28 mn office space absorption in the top 7 cities, almost 5 mn sq. ft. of flexible workspaces were leased across these cities. Maximum leasing activity in coworking spaces was recorded in Bengaluru during the period, followed by HyderabadChennaiNCR and MMR respectively.

The massive demand for coworking spaces in the country by budding entrepreneurs, tech start-ups and even the big multi-nationals is beyond dispute.

Given this growth potential in India, the overall impact of WeWork’s troubles on Indian coworking firms may not be significant. Organized players are likely to continue to thrive, smaller players will consolidate and the coworking show will go now.

Image by Raysonho @ Open Grid Scheduler / Scalable Grid Engine – Own work, CC0

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New Financing Options for Self-Redevelopment

Shobhit Agarwal, MD & CEO – ANAROCK Capital

In a bracing and timely new trend, progressive consultancies offering specialised services and financial assistance for the housing sector are beginning to make their mark on the Indian residential real estate landscape.

For instance, many consultancies offer rental deposit loans to young professionals who prefer to rent rather than buy properties. Via these consultancies, they can secure loans to pay the security deposit which can equal up to 8-10 months’ rent advance.

Unlike in personal loans, the principal payment is made directly to the landlord and returned to the consultancy when the lease agreement ends. The tenant pays interest through the lease tenure.

However, an even more exciting service being offered these days is self-redevelopment funding and management. Firms that offer such services to housing societies are becoming very relevant in cities like Mumbai.

Rather than involving a developer to carry out the redevelopment, housing societies can outsource the entire task to expert consultancies to both finance and manage the redevelopment process according to exact needs and specifications.

The scope of services offered by such consultancies goes beyond just redesigning and construction and extends to handling the associated manpower management and paperwork, dealing with government agencies and even the sale of extra flats based on the FSI and TDR available to the housing society.

While banks and housing finance companies are currently not keen on granting loans to developers, individual societies opting for self-redevelopment can still access finance via these companies.

An increasing number of housing societies in ageing projects are considering of taking the self-redevelopment route. With the help of specialized services, these societies can not only avoid the risk of delays by developers but also access cheaper loan rates.

A society opting for self-development can get a loan for relatively lower interest rates like 12.5%, as opposed to loans to developers which can attract interest rates in the region of 20%.

In the past, the only real option for such housing societies was to entrust the entire redevelopment project to a developer. Today, self-development by housing societies has become a real possibility – and they can now avail of specialized support.

We are likely to see more such consultancies entering the fray as the trend of self-redevelopment becomes more prevalent, especially with various state governments making policy changes to promote self-redevelopment. In fact, this new sector would open up in all earnest if self-redevelopment projects are given more tax exemptions.

The number of buildings that need to be redeveloped in Mumbai is constantly rising. Just before the onset of monsoons this year, the Maharashtra Housing and Area Development Authority (MHADA) identified more than 14,000 buildings within Mumbai as dilapidated structures which needed to be redeveloped with no further delay.

In other words, the opportunities for such consultancies are on the rise. Apart from Government support, they are perhaps the most important link to successful self-redevelopment in cities like Mumbai.

They radically empower housing societies to take charge of the redevelopment of their societies based on their preferences and needs, providing a 360-degree, streamlined redevelopment process.

Self-redevelopment of housing projects does not only give housing societies the assurance of time-bound, cost-controlled and predictable results.

It also brings down the cost of surplus apartments, as opposed to the price inflation which results when a developer with the sole objective of hefty profit margins is involved. In other words, housing societies which self-redevelop their premises can sell the resulting extra flats at lower and more competitive rates.

Considering the various benefits such services bring to the table, a transparent and consolidated management fee – as opposed to the often-gargantuan cost and time overruns of an unplanned or mercenary approach to redevelopment – is indeed a price worth paying.

Redevelopment needs to become an exact science, and the industry looks forward to more and more such specialized players coming to the fore to help increase competitiveness in pricing, and overall efficiency.

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Real Estate Attracts $3.8 Bn Private Equity from Jan-Sept 2019; Nearly 19% Yearly Rise

  • Private equity investments were over USD 3.2 bn in the corresponding period of 2018
  • Commercial sector comprised 79% overall share; attracts close to USD 3 bn funds
  • Residential attracts USD 295 mn during Jan. – Sept. 2019 against USD 210 mn a year ago
  • Retail and logistics & warehousing see total inflows of approx. USD 260 mn & USD 200 mn in 2019 respectively
  • MMR sees maximum inflows at USD 1.59 bn this year; records yearly increase of 3%
  • Pune sees more than 200% yearly rise in investments – from USD 125 mn in 2018 to nearly USD 390 mn in 2019
  • Hyderabad witnessed a 76% yearly decline – from over USD 790 mn in 2018 to just USD 190 mn this year
  • Of total USD 3.8 bn funds in 2019, equity funding comprises 95% share
  • Indian real estate in Q3 2019 alone sees total PE inflows of nearly USD 1.7 bn

Shobhit Agarwal, MD & CEO – ANAROCK Capital

Giving a flicker of hope to cash-starved Indian real estate, private equity funds have pumped in nearly USD 3.8 bn between January to September period in 2019, reveals recent research by ANAROCK.

Recording nearly 19% yearly gain, total inflows equalled over USD 3.2 bn in the corresponding period a year ago.

As much as USD 3.6 bn was equity funding – comprising nearly 95% overall share – while the remaining 5% was via structured debt.

Also, foreign private equity funds continued to dominate the real estate investment scene. Top investors included Blackstone, Hines, Ascendas, Brookefield etc.

Segment-Wise Break Up

  • Commercial real estate continued to attract maximum PE investments, totalling close to USD 3 bn funds in the first three quarters of 2019. In the corresponding period of 2018, total inflows within this segment equalled nearly USD 2.1 bn, thus rising by 43% in a year.
  • Residential segment, on the other hand, received USD 295 mn funding this year as against USD 210 mn last year, thus seeing nearly 40% yearly gain.
  • Retail segment attracted close to USD 260 mn funds from January till September 2019 whereas last year it saw inflows of USD 355 mn, a reduction of 27% in a year.
  • Logistics & warehousing witnessed 27% decline in total PE inflows in 2019 and equalled nearly USD 200 mn as against USD 275 mn a year ago.

Cities On A Roll

  • MMR attracted maximum PE funding in 2019, amounting to approx. USD 1.59 bn. On a yearly basis, the region saw a total inflows increase by 3% from USD 1.54 bn in the first three quarters of 2018.
  • Pune, on the other hand, saw total investments of USD 390 mn between January till September period in 2019 against USD 125 mn in the same period of 2018, a rise of nearly 213%.
  • The IT capital of India – Bangalore– also witnessed nearly 17% yearly gain – from USD 420 mn in 2018 period to nearly USD 490 mn in 2019.
  • Interestingly, Hyderabad, which saw more than USD 790 mn PE inflows in the first three quarters of 2018 saw overall PE funding decline by 76% to USD 190 min in 2019. In the entire 2018, the city attracted total funds worth USD 1.1 bn – more of a one-hit-wonder.
  • Chennai saw investments of nearly USD 230 mn into the real estate sector in 2019 against USD 160 mn a year ago – an increase of approx. 44%.
  • PE funding in NCR continued to squeeze further in 2019 with investors pumping in merely USD 115 mn in contrast to USD 150 mn in January to September period of 2018.

Deals in Q3 2019

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Over USD 25 Bn Worth Of REIT Launches In Next 3 Years – ANAROCK

  • Over 150 mn sq. ft. rent-yielding office properties could get listed in the top 7 cities in 3 yrs; this is 25-30% of the total Grade A office space in India
  • Top 7 cities have close to 550 mn sq. ft. Grade A office supply; of this 310-320 mn sq. ft. is REITable currently
  • Prestige, RMZ Corp, K Raheja Corp, Godrej Properties & Panchshil Realty gearing up for REITs
  • Global heavyweight investors eyeing India’s revving REIT machine
  • Residential REITs still a distant reality; low rental yields major roadblocks

Shobhit Agarwal, MD & CEO – ANAROCK Capital

Commercial REITs may raise over $25 billion for Indian real estate over the next three years, research by ANAROCK Capital reveals.

This involves the listing of more than 150 mn sq. ft. of rent-yielding Grade A office properties across the top 7 cities – covering 25% to 30% of the overall Grade A office space in these cities.

Currently, the top 7 cities have close to 550 mn. sq. ft. Grade A office supply – of which 310-320 mn sq. ft. is REITable as of now.

The recent success of India’s first listed real estate investment trust (REIT) offers much-needed hope to the beleaguered real estate sector.

The enthusiastic response to Embassy Office Parks’ REIT launch – and its more-than-satisfactory performance – is priming investors for similar REIT opportunities, which in turn will open up more funding avenues for the sector. Several large developers are keen to list their commercial assets.

Bangalore-based Prestige Group plans to list its first commercial REIT very soon and has already started segregating its residential, office, retail and hospitality businesses.

It may also launch a retail REIT as and when the opportunity arises. Other players in the REIT fray are RMZ Corp, K Raheja Corp, Godrej Properties and Panchshil Realty.

REITs will help commercial developers improve their liquidity by unlocking the value of their assets to raise capital.

For big and small investors, it is a highly de-risked investment route offering annual returns of as much as 12-14% over the long-term – an attractive proposition when viewed against more volatile asset classes.

Since REITs are a proven success in developed nations, global investors are keen to capitalize on India’s high demand for Grade A commercial real estate.

For domestic investors, REITs are an opportunity to invest in commercial real estate at fairly lower entry levels and add an attractive level of diversification to their portfolios.

While the commercial office sector will dominate Indian REIT listings for the next couple of years, retail and logistics REITs are sure to follow. However, Indian residential REITs remain at best a distant possibility.

The draft Model Tenancy Act, 2019 will make rental housing a more attractive investment play – but for Indian residential REITs to succeed as they have in countries like Singapore and the US, rental yields on Indian housing need to significantly surpass the current 1-3%.

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