The average size of private equity deals in real estate has come down by an annual 60% to Rs 190 crore as the deteriorating market conditions have forced investors to take smaller exposures. The total PE investments have reduced significantly, while the number of deals has remained almost stagnant.
“While there has been a dip in the total amount committed in the second quarter of 2008, the wait-and-watch strategy adopted by PE funds scouting for opportune partners will force Indian developers to re-work their valuations and construction timelines and make them more reasonable,” says Cushman & Wakefield India joint MD Sanjay Dutt.
The PE investments in real estate have been declining since the high of Rs 7,100 crore registered in the fourth quarter of calendar year 2007.
The first quarter of the current calendar year witnessed a drastic decline to Rs 2,050 crore. The investments by private equity funds did rise to Rs 4,780 crore in the second quarter and there have been commitments of Rs 2,910 crore in the third quarter up to mid-August.
There has hardly been any variation in the number of deals executed in each quarter: 15 (Q4'07), 13 (Q1'08), 17 (Q2 '08)and 15 (Q3'08). The deal size has, however, gone down from Rs 470 crore in the December quarter to Rs 160 crore in the first quarter this year. It climbed to Rs 280 crore in the second quarter, but declined to Rs 190 crore in the current quarter.
Meanwhile, smaller cities appear to be affected the most by the slowing PE infusion. While 40% of the PE investments in the December quarter went to tier-III cities, there have been no commitments for the current quarter.
On the other hand, the share of tier I cities, which accounted for a mere 24% of the total PE investments in the December quarter, has now increased to 70%.
Developers have been reluctant about a stake sale in the prevailing market conditions. Among the 79 deals that took place this year, till August, they have adopted the special purpose vehicle (SPV) route in more than half of the cases.
The residential sector attracted a maximum 41% of the total PE commitments, while townships accounted for 21%. The western and southern parts of the country accounted for almost 70% of the total investments, while the north grabbed 26%.
Source: Economic Times