Real estate remains a favourite with investors and $5-10 billion worth of investment is expected in the sector in the next three years, even as investors remain wary of lack of transparency and land ownership issues, says an Ernst & Young survey.
According to the survey, respondents rated real estate as one of the most attractive investment opportunities. Most investors said they prefer making investments in specific projects and not in the entity. The sector is expected to generate returns of 25-30 % over the next 2-3 years but returns are expected to plateau after that, the survey said. About 68% of the respondents said the sector would receive investments in the range of $5-10 billion over the next three years while 27% said they expect investment of over $10 billion.
Most investors prefer to take the special purpose vehicle (SPV) route for picking up stakes in real estate companies. About 95% of investors surveyed prefer to take the SPV route for investment, with 69% favouring SPV with single asset/project holding and 26% favouring SPV with multiple asset holding. “Investors are still shying away from enterprise level investment,” said the survey.
Equity emerged as the most preferred investment instrument with 45% of respondents preferring equity over other instruments. Fully convertible debentures emerged second with close to 27% of the investors voting it as their preferred instrument.
About 84% of the respondents rated the promoter's background and the quality of management as the most important parameter for taking an enterprise-level investment decision. Years of experience, total area (total built-up space developed / managed by the enterprise) and land holdings/ projects in pipeline were ranked as the second-most important parameter by the respondents.
After residential projects, logistics and warehousing seems to be the next buzzword in the Indian real estate sector. About 60% of the respondents said logistics and warehousing, though currently at a nascent stage of development in India, hold out lot of promise. This was followed by mass housing/slum rehabilitation that 20% of the respondents felt was the most attractive missing asset class in India.
Source: Economic Times