Private equity real estate deals in India almost halved year-on-year over the 12 months to March 2013 – the most severe drop in investment activity the country has seen in two years, according to Venture Intelligence (VI), a research service focused on India’s private equity industry.
From April 2012 to March 2013, India had 47 private equity real estate deals closed totaling $1.7 billion, a 46 percent drop from the previous year’s $3.2 billion, although the deal value was higher than the $1.6 billion invested during 2009 to 2010.
However, during the 12 months to March 2013 India saw by far the lowest volume of deals in seven years, according to the data. Only 47 deals were completed, a 46 percent decrease from the 87 deals closed from April 2011 to March 2012.
Hari Krishna, director of Kotak Investment Advisors’ Realty Fund, said that during the past financial year many firms were between their old funds coming to the end of their investment periods and new fundraisings. Many new funds are planning a final close during 2013, he told PERE.
“For a lot of the India-dedicated investment funds that were raised in 2006 to 2007, their fund life came to an end last year,” he said. Consequently, he believes 2013 will show around the same investment activity in private equity real estate, perhaps slightly lower, although he expects deal activity to improve in 2014.
Even as overall deal values dropped, the average deal size of India’s private equity real estate has remained fairly stable over the past three years, and has in fact reached the level it was at just before the global financial crisis, according to VI data.
India’s largest deal over the past two years closed in February of this year when The Blackstone Group and HDFC Venture acquired $367 million worth of properties owned by Embassy Group.
However, India's macroeconomic situation must improve before India sees an uptick in dealflow, Krishna said. The perceived volatility with the country’s low Standard & Poor rating, which was recently set as BBB-, and fluctuating exchange rate – which has depreciated significantly against the dollar – has simply made many foreign investors feel that India is too risky to invest in at this point.
Exits are also problematic, as the previous generation of investments has yet to show returns. However, that it is not the largest barrier to Indian real estate investment, because the top four or five managers in India have about $2 billion worth of exits between them, which gave a net IRR of 24 percent, according to Krishna.
“The perception that there are no exits is no longer true,” he said.
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