JLL India Releases Report On PE Investments Into Indian Real Estate At GRI


Mumbai, 1 December 2016: Leading international property consultancy JLL India released its latest research report at the India GRI Summit – the annual gathering of global and Indian real estate investors, lenders and developers – held in Mumbai yesterday. The report, entitled ‘Palate of the India-focused Real Estate PE Investor: The Times They Are A – Changin’ makes a strong case for equity investors looking at investing in the Indian real estate market. 

JLL India Releases Report On PE Investments Into Indian Real Estate At GRI

 Anuj Puri, Chairman & Country Head, JLL India said, “The report is extremely relevant for real estate-focused investors today, as there couldn’t be a better time for them to regain a strong foothold in the sector. The riskiness previously associated with Indian real estate is rapidly reducing with the Real Estate Regulatory Act (RERA) and Benami Transactions bill in place, the Goods and Services Tax (GST) set to be implemented and the recent demonetization move driving unaccounted-for wealth out of the sector. Another compelling reasons the report puts forth is the growing debt burden of India’s listed developers, for whom debt liability has gone up to INR 832 billion (FY 2016) from INR 252 billion (FY 2007) and who are now offering attractive entry points to investors.”

Through the implementation of the RERA and its recent demonetization effort, the Government has made rapid forward strides in removing major inconsistencies in the system. While the real estate business has currently taken a step back because of the demonetization move, it now stands on a very strong foundation for long-term growth. Equity investments at such times can work extremely well for long-term investors, the report states.

Some of the key observations of the report are: 

·         While equity investment will be on a return journey, the focus will be on quality and not IRR
·         More than USD 2.8 billion worth of platform-level partnerships are already in place, awaiting deployment
·         Mid and large scale developers with strong corporate track records and a focus on corporate governance will earn the maximum investor backing going forward 

In the midst of this changing composition of debt and equity for developer books, there will also be a shift in the deployment trends. Apart from traditional investible asset classes, such as office and residential, the report also identifies a focus towards alternative sectors such as retail and warehousing. This is because after a lull of six to seven years, well-managed Grade A retail malls have started enjoying better occupancy, with rent escalation on the cards. Even as such well-managed assets/entities attract more investor focus, warehousing will also become increasingly attractive with GST to become a reality soon. 

The also report looks at the three modes of consolidation in the real estate sector and how this will impact equity flows:

·         Developers/landowners finding development/marketing partners in large, reputable developers through the JD/JV/DM model
·         Smaller developers being absorbed by larger developers
·         Cash-starved developers monetizing their land banks by selling them to cash-rich/opportunistic developers

Another interesting statistic that the report points out is that while in the first half of 2016, as many as 339 developers owned the overall completed office space in India, the top five owned a massive 30% of this space (each owning more than 10 million sq. ft.), while the other 275 owned just 25%. While this presents a clear case of overcrowding, it also indicates that equity will find its way to the stronger players.