Realtors see higher pvt equity investments

Realtors see higher pvt equity investments
The Hindu Business Line, June 1, 2009, Page 1

Moumita Bakshi Chatterjee, New Delhi

Enthused by a strong institutional response to QIP (qualified institutional placement) issues, builders are now anticipating revival of private equity (PE) investments at project level, but real estate funds want to see more sales in the property market before finalising deals.

Mr Pradeep Jain, CMD of Parsvnath Developers, says that PE firms have already started re-entering negotiations.

“With financial institutions responding well to the fund raising by real estate companies, PE firms do not want to be left behind,” he says, adding that Parsvnath would go for PE funding but only if a good opportunity crops up in SEZs and hospitality projects.

Developers argue that return of buyers into the residential market and new launches targeted at affordable and middle-income housing have improved sentiments in the last two months.

This, in turn, is prompting real estate funds to take a fresh look at the sector, they say.

“Yes. The PE firms have started showing interest in the real estate sector. We are in talks with a few of them for project-level funding,” Unitech said in response to an e-mail query.

The company is learnt to be in talks with PE funds for investments in two residential projects. Unitech, last month, had garnered Rs 1,625 crore from a QIP issue, lifting the flagging mood in the property space.

Still a fraction

But PE funds — most of which have not loosened their purse-strings for over six months now — feel that despite all the talk about sales picking up, volumes are still a fraction of the previous euphoric levels.

“The consumer sentiment is looking up but the big question is how much time it would take to translate into sales. Also this time, the PE pie has contracted as many funds are facing balance-sheet problems back home,” says Mr Jagdeep Pahwa, Director, Infinite India Investment Management, which manages $500 million of funds.

Given the tough market reality, the low-hanging fruit would be project-level PE funding. “Investing at the SPV level, particularly residential projects, is easier. Against this, PE investment at company level allows an exit only when the builder goes public, and even then, it carries risk factors like the sales position of the builder and capital market conditions,” Mr Pahwa said, adding that company-level investments also involved more intense portfolio management given that most builders had diverse projects.

According to Mr Om Chaudhry, CEO of FIRE Capital Fund, valuation is another sticky issue that is still holding PE players back. FIRE Capital has not made any fresh commitment in the last 2-3 quarters, and feels that the developers are yet to come to terms with ground realities, where sales cycle is stretched and more effort has to be put into selling of inventories.

“PE funds had made investment in 2007 and early 2008 at high valuation but many are yet to see those projects in development mode. Moreover, I feel that the valuation needs to come down by 50 per cent of 2008 levels, for PE funds to enter the market…What we have seen so far is a 15-20 per cent correction,” he says.