PE players emerge as the biggest contributor to the Indian real estate sector; bank credit shrunk by 50% since 2010

knightfrankBy Accommodation Times Bureau

Mumbai, 4 April 2017: Knight Frank India today launched the first edition of its Capital Markets Report. Titled ‘Analysis of Institutional Funding in Real Estate’, the report focuses on private equity (PE) fund flow across real estate asset classes between 2010 and 2016.


Key takeaways:


  • ·         The total funding in the Indian real estate sector increased by 40% from USD 3.8 bn in 2011 to USD 5.4 bn in 2016. This takes in to account the fund flow on account of private equity, NBFC, bank credit and IPO


  • ·         Bank credit has shrunk drastically in the last few years from 57% in 2010 to less than 24% in 2016. Rising Non-Performing Assets (NPAs), higher risk provisioning and mounting losses in the real estate industry have led to reduction in credit offered by banks


  • ·         Around three-fourth of the real estate sector’s funding requirement is met by PE players in the past couple of years; as against one fourth in 2010


  • ·         2015 witnessed the highest amount of PE fund flow in real estate since 2010 with more than USD 3.6 bn investments across 100+ deals


  • ·         2016 observed a 13% drop in PE fund flow with less than 60 deals in the previous year. However the year 2016 has also recorded the highest amount of the average deal size amounting to USD 56 mn


  • ·         Shortages in quality retail space and increasing rental values have attracted PE players towards the retail segment in the last two years. Blackstone’s purchase of L&T Realty’s Seawood Mall and GIC’s investment in Sheth Developer’s Viviana Mall, are some of the large deals during the year


  • ·         Mumbai has regained its number one position in terms of attracting PE funds among all cities of India. Bengaluru continues to hold steady in terms of attracting PE investments, although its share has dipped marginally since 2013


  • ·         NCR, which used to lead in 2013, has dropped sharply from 39% to just 9% in a span of three years. Poor sales volume, huge amount of unsold inventory and stagnant prices in the residential segment of NCR have shifted PE investors interest away from this market
  • ·         IT Parks attract the largest deals within the real estate sector in India. With the average deal size amounting to USD 106 mn


  • ·         Some of the major deals during the year in the IT park space includes the USD 221 mn fund raising by Manyata Promoters (part of the Embassy Group) from Edelweiss Financial Services and IIFL Holdings, and M3M’s 3.5 mn sq ft Gurgaon IT park’s stake sale to TRIL and Standard Chartered Private Equity.

Commenting on the report, Rajeev Bairathi, Executive Director & Head – Capital Markets, Knight Frank India said, “As the real estate market in India matures, driven by both regulatory and market forces, we expect PE capital to play an even greater role. Creation of public markets for commercial assets in the form of REITs and sale of distressed assets by banks to reduce NPAs are some of the drivers that would attract a lot of foreign capital into the Indian real estate market.”


Dr. Samantak Das, Chief Economist & National Director – Research, Knight Frank India added, “The current environment for real estate is both challenging and opportunistic at the same time. Bank credit, which used to account for anywhere between 50% and 57% of the sector’s institutional funding requirement till 2014 has witnessed a sharp reduction in the last two years in the range of 24%-26%. Rising non-performing assets (NPAs), higher risk provisioning and mounting losses in the real estate industry have led to significant reduction in credit offered by banks. PE players have replaced banks and are currently the biggest source of institutional finance for the real estate industry. Currently, PE funding is not just restricted to equity but has largely moved towards a quasi-equity type of structure.”

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