Despite distress, PE investment in real estate touches Rs 40,000 crore
Large institutions like HDFC Ltd, Edelweiss Financial, ASK group and Motilal Oswal Financial raised real estate funds in 2017

Despite the slump, the real estate sector has seen robust private equity (PE) activity in 2017 with over Rs 40,000 crore investment.

Several private equity players raised fresh funds to invest in the sector.

The real estate sector has received more funds than last year despite the falling sales and distress in the sector. In 2016, total PE investment in the real estate sector stood at Rs 36,590 crore.

There has been strong fund raising by private equity players for investment in the real estate sector. Several domestic private equity sponsored by large institutions like HDFC Ltd, Edelweiss Financial, ASK group and Motilal Oswal Financial have raised real estate funds during the year. 

Investors had turned cautious as the real sector has been going through a rough patch for the past four years and there is no apparent revival in sight.

However, things are looking up, especially for the affordable housing segment, where several players are raising funds to invest.

Recently, HDFC Capital Advisors Ltd, a wholly owned subsidiary of HDFC Ltd, raised $550 million in its second affordable housing fund.

The HDFC Capital Affordable Real Estate Fund II, along with the first fund, will be used to create a $1 billion platform to target affordable and mid-income residential projects in India’s top 15 cities.

HDFC Capital Affordable Real Estate Fund I, which was raised in 2016, has a corpus of about $450 million, of which a significant portion has already been invested.

Edelweiss Alternative Asset Advisors Limited (EAAA or Investment Manager), leading player in alternative private debt, across special opportunities, real estate and distressed assets credit space, announced the final close of its onshore AIF Edelweiss Real Estate Opportunities Fund (EROF or Fund) in November 2017 at a targeted fund corpus of Rs 500 crore. 

The fund aims to capitalise on limited liquidity in the real estate market through a multi-strategy approach with focus on top six Tier-I cities in India namely Mumbai, NCR, Bangalore, Hyderabad, Pune & Chennai across residential and commercial real estate.

Says Nitin Jain, CEO, global wealth and asset management, Edelweiss Group: “We believe that residential real estate is poised to bounce back with existing regulations available to protect consumer interest. In addition, limited capital availability creates an ideal opportunity for providers of alternative sources of capital to invest in real estate. Improving business sentiments and a recovery in the demand for office space will lead to further investment opportunities.”

Points out Vibhor Gujarati, head of marketing – India, Edelweiss Alternative Asset Advisors Limited: “Post demonetisation, the market in India has stabilised and Rera has given confidence to the buyers on timely completion of projects. Investments in alternative space in India have picked up significantly over the past year or so. We are encouraged with the response we have received for our real estate fund and remain confident on leveraging the opportunities available in this space. Edelweiss’s strong sourcing capability, faster quality deployments and multi- strategy approach has helped raise 60 per cent of the fund corpus post-demonetisation.”

According to experts, things may turn around with new supply likely to be restricted in 2018. The rise in housing demand and sales would lead to reduction in unsold stock, which is pegged at around 5-6 lakh homes currently.

The sector is likely to see a major consolidation, as many developers would sell their assets to complete ongoing projects bring down debt.

2017 saw a decline in housing sales and launches, which real estate players attributed to triple tsunamis faced by the sector in form of note ban announced in November 2016. Substantial money is likely to be raised for the affordable housing projects.

Many players will focus on providing long-term equity and mezzanine capital to developers to build affordable and mid-income housing units across the land and pre-approval stages.

For instance, HDFC Capital aims to tap into the momentum created by the Centre’s urban housing mission, which seeks to provide 19 million homes across India primarily for the economically weaker sections and low-income groups over the next five years.

“These funds will play a significant role in progressing towards the Housing for All by 2022 objective of the government. Affordable housing will not only act as a growth driver for the real estate sector, but will also be a catalyst for GDP growth. The lack of flexible, long-term capital is one of the key challenges facing developers of affordable and mid-income housing in India,” said Deepak Parekh, chairman, HDFC Ltd.

The H-CARE funds will provide financing to leading developers at attractive rates and on flexible terms, he added.

Said Keki Mistry, vice-chairman and CEO, HDFC Ltd: “Affordable housing is a critical component of quality urban infrastructure and also a growth driver for the real estate industry. H-CARE 1 and H-CARE 2 will look to partner with developers to form long-term platforms focusing on affordable and mid-income housing.”

Recently, Motilal Oswal Real Estate had announced the final closure of its third fund at about Rs 1,200 crore. ASK had recently announced the first close of its Rs 1,000-crore realty fund.