The stressed asset situations across the world raise the question as to whether FDI, private equity and HNIs would look at investing here in the same light as elsewhere or whether they would view investing in Indian real estate more positively.
Experts are of the view that the next two to three years are the best time for private equity investment in India as we will see more realistic valuations. Orbit Corporation comments that the asset bubble has gone and these are the best time for private equity investment.
The demand for urban renewal and modern housing does stay for the next 25 years. US and European markets do not give much room for growth. The Asian markets like India and Vietnam are user driven where demand will grow faster and give much better returns. India will become the hot destination for private equity and HNIs. It will, in fact, be the safest haven for real estate at this point.
Many investors and NRIs are still very keen on India and are evaluating opportunities but not committing, say industry experts. Depending on which market falls at attractive levels, and offers good product and remunerative appreciation, we will see investments come in early. Private equity and fund managers will explore distress sales, least risk opportunities and will commit and diversify to segments of real estate like logistics, front office, hospitality and SEZs in top cities and good locations. The caveat would be they would look at established and capable players and not so much the new generation, emerging, no-track record players. The deal sizes would also be smaller with private equity looking to invest partly and bring in more partners to de-risk themselves.
Experts point out that both banks and private equity will now be strict with technical and legal due diligence. The end user will obviously benefit as only credible projects will be backed by funding. There will also be emphasis on timely delivery and realistic pricing. Developers would be expected to sell their project fast rather than hold on for better pricing.
In this scenario, most players will like to do above average projects. They would strive to be the finest in design, infrastructure and amenities which would mean value enhancements. In the days to come buyers would not have to contend with price appreciation every few days.
This is the time to be in India as many more reductions have got factored in. Developers have realized that rather than acquiring 10,000 acres of real estate we need to buy 100 acres and develop it. Demand is there at a price. People need homes. Last year they were scared of the prices. They are now probably looking for a house. Currently, the property prices can play a much more significant component than interest rates in impacting real estate demand. Any decline in the prices could revive customer interest and catalyse demand.
With countless real estate projects running late or stalled midway, funds-both private equity and venture capital are seen exploring options to deploy funds at an attractive valuation to help developers tide over the liquidity crisis. The onus is now on the developers to assure returns to these investors to enable them to retain their faith in the Indian realty sector. This looks achievable considering the demand for housing backed by the liquidity measures injected into the banking system for individual buyers.
The speed at which markets have fallen in some parts of the world, private equity and HNIs will look at where they can get maximum returns. Investors will invest partly in India and partly in other markets like the US. They will find good value here, added to it is the dollar appreciation which will enable them to get a better price. Private equity will continue to invest as prices become more attractive and they get the right place, right property and asset to invest in.
India is an under-serviced country and all sectors will look attractive, be it retail, housing or hospitality. It is more a question of micro deals rather than a macro. Right thinking, planning and pricing are of importance. For the end user private equity investments will help as there will be volumes in the market and depth and width in the market. The end user never gains in a thin market.
Private equity will look at India far more positively than abroad. The time frame to reach an upside here will be shorter as compared to other countries. In the case of developed countries one is not sure how much further prices will go down and how much longer it will take for the prices to appreciate. The Indian economy is in far greater shape and will take far less time than other economies to bounce back.