Recent Trends in PE investments in Real Estate sector in India

The PE investments in real estate was recorded at $276 million (around Rs 1,638 crore) in first half of 2013 as compared to $514 million (around Rs 3,050 crore) in the same period last year. The decline in the quantum of PERE investment was essentially due to less number deals (13 in H1 2013) as the average ticket size of deals remained same.

Consultancy firm Cushman and Wakefield attributed the drop to the volatility in the market, including slower growth of the Indian economy, political stalemates and depreciation of the rupee. While, there is a strong investment sentiment for PERE transactions in India, they display a reflection of the market sentiments, where funds are looking at only embarking on projects with strong fundamentals.

Even though private equity investment in the Indian real realty has fallen nearly 50 per cent to $276 million in the first half of 2013 due to lack of good projects and weak sentiment, foreign investors are still bullish on the sector. PE funds continue to show keen interest in the market with a number of deals in discussion.

“Investors are willing to invest in real estate; however they are exploring the market for right real estate projects. We anticipate that in the next few quarters, after some regulatory and politico-economic environment are regularised, the momentum in real estate will pick up throwing open more investible options for the investors,” said Sanjay Dutt, Executive Managing Director of South Asia operations, C&W. He added, currently, it was estimated that around $2 billion is ready to be deployed in the real estate sector of the Indian market. The fund raising environment (domestic and offshore) has consistently improved with more quality capital available for the sponsors with demonstrated track record.

According to property consulting firm Cushman and Wakefield about $2 billion (Rs 11,854 crore) is available with private equity firms ready to be deployed in real estate in the next one year, but PE funds want to put in money only in those projects with strong fundamentals. According to Sanjay Dutt, despite the slowdown in the construction market and the reduced number of investible projects in India, real estate is still the fourth most-invested sector by private equity funds.

“We anticipate that in the next few quarters, after some regulatory and politico-economic environment are regularised, the momentum in real estate will pick up throwing open more investible options for the investors,” he said.

So far in 2013, the highest value PE investment was $131.6 million in Pune, followed by $67.5 million in Mumbai, $38.8 million in the National Capital Region, and $16.9 million in Bangalore.

Even data from Venture Intelligence shows that private equity-Real Estate firms made 13 investments (amounting to $318 million across 12 deals with disclosed values) during the quarter ended June 2013. The volume of investments perked up significantly from the seven investments in the same period in the previous year (which witnessed $172 million being invested across six transactions with disclosed values) and also the eight investments (worth $569 million) during the Jan-Mar 2013 quarter.

However, there is a strong growing trend towards investments in ready office space. The growing stability of the market is reflected by the continuous growth of the core investors (number and value) with over $1.3 billion (Rs 7,705 crore) invested in ready office space during the last three years.

Some recent marquee deals/developments in PE investments:

•          Pune witnessed transactions such as the Panchshil Realty and Ireo Management Ltd SEZ by Blackstone for $75.9 million (Rs 4.5 billion).

•          Ascendas Trust’s Rs 600 crore (about $110 million) acquisition of 2 million sq. ft of office space in Hyderabad from Phoenix Group was the largest investment during the second quarter of FY13. This was followed by Xander’s Rs 280 crore ($52 million) investment in Supertech’s 125 acre township project in Gurgaon and Clearwater Capital’s (along with Ajay Piramal Group non-banking financial company PHL Finance) Rs 300 crore ($50.2 million) investment to finance VGN Developers’ acquisition of a land parcel for a gated community project in Chennai.

•          In September ‘13, Kotak Real Estate fund said it had raised $200 million (Rs 1,200 crore) from select group of investors and has firmed commitments to raise $200 million more to close its $400 million eight-year tenure fund to invest in only residential properties in India’s six metros.  The fund will invest an average of $15-20 million in each project and will put in money from the first close in 10-12 projects. It is looking to generate a return of 20 percent for investors of the new fund.

•          PE Firm, Indian Property Advisors Pvt Ltd. (IPAL) is planning two funds – a Rs 300 Cr domestic fund and $250 – 300 million offshore fund, which would be raised in the second quarter of 2014. IPAL would be investing in small redevelopment projects with a turnaround of three years and will only fund for the growth capital.

The company plans to have plain vanilla equity investment rather than a structured deal.

•          Even Tata Realty has put its 780,000 sq ft IT park in Mumbai’s Goregaon suburb on the block and aims to raise Rs 800 crore through the sale of the park, while Oman’s State General Reserve Fund and the Government of Singapore Investment Corp (GIC), investment firm Temasek committed to invest $200 million in HDFC Real Estate Fund.

•          DLF, India’s largest real estate company, had initiated talks with four buyers, including leading private equity (PE) funds, for the sale of Aman Resorts, its luxury hotels chain, said a source involved in the deal. In December 2012, DLF had announced it had sold the entire stake in Aman Resorts for $300 million to Adrian Zecha, the hotel chain’s founder. Sources said Zecha had missed two payment deadlines in March and June, adding he wasn’t able to raise funds for the deal. “Adrian is still in the fray. Being a management buy-out, it is taking time to close. In the meantime, they (DLF) are also in discussions with four other buyers, including some global PE funds that are in various stages of evaluation and diligence,” the sources said. “They are not banking on one buyer for the sale. That is why they’re talking to three-four companies.”

•          The real estate fund of Morgan Stanley has abandoned plans to invest nearly $200 million (about Rs 1,240 crore) in an upcoming commercial real estate project in Mumbai after the rupees recent plunge against the dollar made the deal unrewarding, three people familiar with the development said. Morgan Stanley Real Estate Fund was working on the structured finance deal with Mumbai based Wadhwa Group since January to invest in the latter’s 1.6 million square feet office project in Bandra-Kurla Complex. Construction on the project, called ONE BKC, is due to be completed in the next 12-15 months. The fund has invested about $780 million in Indian real estate so far and the investment in ONE BKC would have been its first in a commercial property in Mumbai. Returns that were arrived at in earlier negotiations between Morgan Stanley and Wadhwa were shrinking even before concluding the deal, one of the people quoted earlier said. The hedging cost for the entire deal would have been huge. Morgan Stanley declined to comment, but Wadhwa Groups chief financial officer Srinivasan Gopalan confirmed that the proposed deal has fallen through. Wadhwa Group is now in process of raising domestic debt of over Rs 1,100 crore from Standard Chartered Bank for the project.

(Sources: First Post 1st August 2;013, Economic Times-26-Sep-2013, Live Mint 19th Sep ’13, Business Standard 28th Sep ’13, 27th July ’13)

Views of Mr P. H. Ravikumar, Managing Director, Capri Global Capital Ltd on the Mid-Quarter Monetary Policy: September 2013 announced by RBI Governor Raghuram Rajan

Markets have reacted adversely to the surprise hike in the repo rate by the Governor of Reserve Bank of India in the Monetary Policy announcement today.

The Market expectations of status quo at the worst or a cut in repo rate in my view were clearly part of the euphoria generated from out of the positive developments on several fronts during the last few weeks post the assumption of charge by Mr. Raghuram Rajan as Governor of RBI.

However, the inflation statistics and the food inflation in particular should be of serious concern to all policy makers. I believe the new Governor is sending a strong signal to markets of his unhesitating ability to take unpopular decisions if such decisions are warranted by ground realities. The Governor has sent a strong message so early in his tenure to the market “don’t take me for granted”.

The deferment in withdrawal of quantitative easing by US has given Indian policy makers a breathing space of three months at the least and six months at the best. It is important that key policy decisions to insulate the economy (to the extent possible on final QE withdrawal by US must be taken quickly even if some of these decisions are not popular).

While the tight interest rate out look continues to be on cards in the short run definitely, Reserve Bank of India will need to address the issues of sufficient liquidity in markets given that the busy season is now round the corner. The management of the currency exchange rate is the other major issue which will have to be addressed. Allowing the Rupee to strengthen beyond current levels may not be actually in the interest of the overall economy in general and exporters in particular.

Source: http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=29590

Gurgaon Realty Trend

New Delhi's property market may have slowed down with builders struggling to sell flats, but Gurgaon is still going strong. Cushman & Wakefield say prices in Gurgaon's luxury residential market have risen 29 percent year-on-year (YoY). So what used to cost around Rs 17,000-25,000 a square foot has appreciated to Rs 22,000-32,000 a square foot.

In the more affordable mid-end category, Cushman & Wakefield estimates an 18 percent price appreciation. So, apartments that a year ago cost Rs 6,500-9,000 a square foot now carry a price tag of Rs 6,800-11,500 a square foot. Gurgaon's Golf Course Road saw frenzied real estate activity over the last decade.

(Source: “Prime Property”-CNBC TV 18, 5^th July 2013)

A look at some of the micro-markets under Gurgaon Realty Market

Dwaraka – Gurgaon Expressway on its way to be a hot Real Estate market

Dwarka-Gurgaon Expressway is now registering huge real estate development with developers taking advantage of the planned infrastructural development in and around the developing sectors along this stretch.

Dwarka-Gurgaon Expressway, also known as NPR (Northern Peripheral Road), a project of the HUDA is expected to ease the traffic rush on the operational Delhi-Gurgaon Expressway. Out of the total 18km length, black-top work of nearly 13km-length has already been completed with balance work expected to be completed in the next six months.

With its close proximity to the IGI airport, the Delhi Aerocity Metro station, and the forthcoming Diplomatic Enclave in Dwarka the Dwarka-Gurgaon Expressway area is expected to follow the same growth curve as premium Gurgaon locations like Golf Course Extension Road and NH-8. With the increasing number of corporates operating out of Gurgaon, coupled with the limited availability of mid-segment residences in Gurgaon and Delhi, Dwarka-Gurgaon Expressway is emerging as an attractive alternative for investors and end users.

Fast connectivity and proximity to the proposed Diplomatic Enclave in Dwarka will significantly benefit Dwarka Expressway, placing it high on the investment-return scale. Projects that were quoting at Rs 2,500 per sq ft in 2010 are quoting at Rs 5,000-7,500 per sq ft now, for multistory residential units.

A number of top realty players like Chintels Group, ATS, Vatika, Puri Construction, Assotech Ltd, Godrej Properties, Adani, Tata Housing, Sobha Developers, Raheja Developers, CHD Developers, Micortek Infrasturctures Pvt Ltd, BPTP, Satya Group, Spaze, Paras, Ansal Housing, etc, are already developing projects along this stretch.

Residential property of Dwarka-Gurgaon Expressway, especially in areas like Sectors 103-106, 109 to 113, is estimated to appreciate by substantially over the next five years. Nearly 18,649 residential units were launched along here since 2007.

NRIs, too, are showing interest in this area owing to the handsome appreciation of property here, along Dwarka-Gurgaon Expressway. This area has also emerged as a prominent destinations for IT-ITeS outsourcing and off-shoring hubs with 22.3 million sq ft of new office supply expected by 2017 and about 48 million sq ft of office space stock to be added during 2012-2017.

Ajay Aggarwal, MD of Microtek Infrastructure Pvt Ltd, says: “Work on and near Dwarka Expressway is moving in the right direction. Like any other big-ticket infrastructure project, it also faced some delays, but thanks to the combined efforts of all the stakeholders, it has picked up momentum lately. In the near future, property market around Dwarka Expressway or New Gurgaon will become premium destinations.”

Cyber city of Gurgaon rules the realty roost

Gurgaon and Manesar continue to be the hub of real estate activities in the NCR region. Despite the slowdown in the economy, demand for residential and commercial real estate in these sub-cities has not been affected appreciably. Now, developments in these parts are extending all the way till Dharuhera along NH-8, Sohna along Sohna Road, and Pataudi along Pataudi Road. A number of large players like Godrej, Tata Housing, Mahindra Realtors, and Sobha Developers have entered the market here. Apart from them, a number of realty majors like DLF, Unitech, Emaar, Raheja, Ireo, Vipul, Vatika, M3M, Puri Construction, ATS, Supertech, Assotech, Orris, Ramprastha, etc, have already launched projects in the area.

A large number of Fortune 500 companies, BPO and ITeS companies, too, have opened offices in the millennium city. Thus, the demand for commercial real estate space and the demand for residential units feed upon each other. Interestingly, despite the slowdown in the economy in the; last couple of year, there is no visible slowdown in the demand for commercial space in the sub-city, which has further kept the demand for residential units alive.

However, along with signs of sluggishness in the economy, the commercial sector is facing challenges like lack of funding for building more projects, inflated prices, excess inventory across large cities, and delays in obtaining building approvals.

Market boom on Gurgaon – Faridabad Road

Real estate development along Gurgaon-Faridabad Road, which further connects to Ballabhgarh-Sohna Road, is in a boom phase.

This stretch connects the economic centres of neighbouring states like Haryana, Rajasthan, ;Delhi, and Uttar Pradesh. This road also connects tourist spots like Surajkund, Damdama Lake, the Tourist Complex in Sohna, the Bird Sanctuary in Sultanpur, Agra, Jaipur and other historical places of Rajasthan and Uttar Pradesh. Tourists coming from T3 airport or from Jaipur will also find Gurgaon-Faridabad Road highly convenient and time-saving for reaching tourist spots like Agra, Mathura, Vrindavan, etc.

Gurgaon-Faridabad Road is shaping up as a prime location for real estate development with fast connectivity and improving infrastructure. This developing realty region is proving to be a good residential location owing to its excellent connectivity with Noida, Ghaziabad, Gurgaon, and South Delhi. The master plan of the area envisages a future Metro line, provision for wider roads, parks, along with a ;good combination of commercial and residential mix of projects.

Future Market Gurgaon Extension: Next residential hub

A new developing zone – Gurgaon Extension (the area extending from Sohna Road and directly connected to the main Gurgaon-Sohna Road) – is being considered by realty experts as a good place for affordable-range housing.

According to the recently approved Master Plan-2031 of Sohna, the population of Gurgaon Extension (Sohna) is expected to grow tenfold by 2031. The developing area will have 5,000 acres of residential and commercial development and 2,600 acres of green and open space development in over 20 sectors. Close on the heels of its new Master Plan-2031, a slew of group-housing projects, townships, plotted developments, and luxury projects have been announced by leading developers like Raheja Developers, IREO, Parsvnath, Avlon, Gold Souk, etc, for this area. The Delhi-Mumbai dedicated freight corridor is located close by and all the mega industrial estates and infrastructure coming up along with the KMP corridor will add more value to the investments here.

Connectivity and accessibility is the biggest USP of Gurgaon Extension (Sohna). Proposed KMP bypass would take care of the heavy vehicle movement, reducing the traffic flow on the existing Gurgaon-Sohna-Alwar Highway and the new 90metre to 150metre roads. Also, the area will have excellent connectivity with the NCR through the proposed Metro line.

Gurgaon Extension has emerged as a prime residential destination for end users and is currently registering a healthy demand. It is a good example of mixed-use development with great scope for further growth. Planned urbanization with IT parks, malls, residential apartments, villas and new ;residential projects under construction on both sides of this road make the area a sought-after location among first-time homebuyers and those looking for a property for investment. 

(Sources: Prime Property-CNBC – TV 18-5^th July 2013, Magic bricks Website 14^th August 2013, 16^th August 2013, 16^th August 2013, Business Standard, and 17^th August 2013)

FSI for all categories of Cessed Buildings increased to 3.00

A decision kept on hold since 2009, the state government on 26^th July 2013 announced that a floor space index (FSI) of three will be extended to all the three categories of cessed buildings (Category A, B and C). The move would certainly make it attractive for builders and developers to offer redevelopment to more than 16,000 cessed buildings.

The move is expected to provide a major boost to plans of redevelopment of such properties.

What are Cessed Buildings?

Cessed buildings - built prior to 1969 - are privately-owned old buildings in South Mumbai whose repair and maintenance are the responsibility of the Maharashtra Housing and Area Development Authority (MHADA). The tenants in these buildings pay a certain cess to the MHADA as owners have found it impossible to maintain the buildings because of low rent income.

Buildings which were constructed before 1940 are categorized as category A cessed building, Buildings built between 1940 to 1950 are categorized as Category B Buildings, and Buildings built between 1950 to 1969 are Category C buildings.

The Bombay High Court has ruled that cessed buildings in the city can be demolished and redeveloped with additional Floor Space Index (FSI) only if can be allowed only if the MHADA certifies the building as 'dilapidated'.

With this categorization Over 12,768 buildings which were constructed before 1940 are categorized as category A cessed building, about 1169 buildings built between 1940 to 1950 are categorized as Category B Buildings, and about 1058 buildings built between 1950 to 1969 are Category C buildings.

Existing Regulation on Redevelopment of Cessed Buildings

Section 33(7) of the Development Control Rules for Mumbai (DCR) lays out that if a cessed building is redeveloped, the developer can get maximum FSI of 2.5 or the FSI required to provide tenements to all the tenants in the building, whichever is more, plus some incentive FSI. The developer then rehabilitates all the tenants in the old building, and sells the extra FSI for his/her profit.

1. In case of redevelopment of 'A' category cessed buildings undertaken by the landlord or Cooperative Housing societies of landlord or occupiers, the total FSI shall be 2.5 of the gross plot area, or the FSI required for rehabilitation of existing occupiers plus 50% incentive FSI, whichever is higher. Under the new policy the developer is assured of at least 50% FSI for free sale. Also the policy enables rehabilitation of all occupants on the same plot, reducing social dislocation. 

2. Self contained flats of minimum 300 sq.ft. (As per Govt. G.R. dt. 2-3-2009, minimum carpet area admissible is 300 sq. ft. in lieu of 225 sq. ft before amendment) and maximum 753 sq.ft. carpet area are given to the old residential tenants/occupants. Shopkeepers are given an area equivalent to their old area. 

3. In case of 'B' category cessed buildings permissible FSI shall be the FSI required for rehabilitation of existing occupiers plus 50% incentive FSI.

3. As per the permissible FSI, stated above, will depend upon the number of occupiers and the actual area occupied by them, no new tenancy created after 13.06.1996 shall be taken into account, while computing the permissible FSI. Similarly, tenants in unauthorized constructions made in the cessed buildings shall not be taken into account while computing permissible FSI, i.e. the total no. of tenants/occupants should not increase after 13.06.1996. The responsibility for rehousing such tenants whose tenancy may have been created after 13.06.96 or who stay in unauthorized construction will lie solely with the NOC holder.

5. Though some buildings may belong to 'C' category (may not belong to 'A' or B' categories), they may be so dilapidated and dangerous that their reconstruction is most urgently necessary to this end, the Government has granted additional incentive FSI as per Point No.1 above for redevelopment of buildings of any category declared as dangerous, prior to monsoon of 1997.

What would change?

After the move to increase FSI for category A cessed buildings to 3.0 times, the state government on 26^th July 2013 announced that a floor space index (FSI) of three will be extended to B and C category buildings (constructed prior to September 30, 1969). Clubbing buildings that were earlier classified as category A, B and C, the state announced on that it would give floor space index (FSI) of 3 to all cessed buildings to boost redevelopment activity in the city.

Chief Minister Prithviraj Chavan, replying to a debate on the issue in the state legislative assembly, said that all categories of cessed buildings will now have an FSI of three.

Developers never paid attention to B and C cessed buildings as only A category buildings used to get that FSI. Many buildings which used to be neglected by developers for want of incentives can now go in for redevelopment.

       

In addition to the above, Fungible FSI of 35% at premium is also applicable to Cessed buildings Redevelopment. The GoM had amended the DCR to enable the tenants to get minimum 300 sq. ft and maximum 753.50 sq ft area flats post redevelopment. As per the modified DCR, the tenants will also be eligible to get further additional area upto 35% as fungible FSI applicable to all sizes of flat. The FSI can be utilized either to provide flower bed, dry balcony, nitch areas or voids or may be used for constructing bigger habitable areas.

Expected impact of the changed regulation

The amendment would benefit more than 16000 families, a majority of lower middle class who live in hazardously wrecked structures mostly in the southern areas of Mumbai. Also Category B, and C buildings which were till now neglected by builders for lack of sufficient commercial incentive would find increased interest for redevelopment. For several years, builders have been reluctant to undertake redevelopment of these buildings as the plots on which they are constructed are small and it was difficult to redevelop with an FSI of 2.5. As a result, residents continued to languish in old structures with the constant fear of the buildings collapsing.

The highest benefit of the amendment has the potential to benefit thickly populated areas of Bhendi Bazaar, Girgaon, Kalbadevi, Grant Road, Tardeo, Byculla, Dadar, Parel, Matunga, Sion, Also some of the Cessed buildings in Bhendi Bazar, Sandurst Road, Grant Road, and Byculla are identified under the category of cluster development and hence, builders are likely to bag FSI of more than 3.0 times Developers have welcomed the move, saying that it will have a major impact. “The hike was needed and it will really bolster the creation of affordable homes in the city,” said Sunil Mantri, chairman, Indian Merchants Chambers (real estate committee).

While housing activists are also happy with the decision, they want the government to look beyond just hiking FSI. “The state should beef up the corresponding infrastructure as only hike in FSI will not serve any purpose, apart from putting a strain on existing resources,” said Utsal Karani, secretary, Janhit Manch.

According to Shadaab Patel chairman and managing director of Platinum Constructions Private Limited, the recent announcement was much awaited move. “There would be creation of more housing stock, which could also result in some price correction,” he said.

However, builders want more such proactive steps.

“The next move should be single-window permissions so that approvals are processed faster,” said Sunil Mantri vice president of the National Real Estate Development Council.

Sources: The Times of India (27^th July ’13), Hindustan times (27^th July ’13), MHADA Website, MCGM Website.

Money Matters renamed as Capri Global

Move was made after both companies entered a strategic tie-up

Non-banking financial services firm Money Matters has been renamed as Capri Global Capital following both the companies entering into a strategic tie-up and has appointed Qunitin E. Primo III, as Non-Executive Chairman on its board.

Qunitin E. Primo III is currently Chairman and Chief Executive Officer of Chicago based Capri Capital Partners LLC (CCP), which is a $3.4 billion fund in real estate and structured equity investments.

“With Quintin coming on board, we plan to aggressively expand our operations and launch new products including expansion of lending portfolio to MSME segments as a part of diversification strategy with special focus on priority sectors,” said CCCL – India’s Managing Director PH Ravikumar while adding that the company plans to deploy around 1900 crore rupees under MSME & priority sector lending by the end of 2016-17.

In 2010 controversy surrounded Money Matters as its then chief executive was arrested by Central Bureau of Investigation (CBI) on the allegation that the company has bribed or attempted to bribe bankers to get loans for many companies.

Source: http://www.business-standard.com/article/companies/money-matters-renamed-as-capri-global-113080900781_1.html