Realty deals in Chennai market have shown a gradual decline over the years. The private equity deals which peaked to 11 during the year 2010, declined to 6 in 2011 and no deal has been reported so far this year. While the quantum of funds invested during 2010 was $136 million, it went up to $154 million during last year, according to Venture Intelligence survey.
There were two exits during last year with an estimated value of $54 million. According to industry sources, while the level of interest continues to remain in realty sector, PE funds have become wary of market gyrations and prefer committing for residential projects in the changing market scenario.
“There is no dearth of opportunities for funds in the Indian real estate market today. But the real issue is the limited options available for funds to exit today”, says Ashutosh Limaye, Head of Research, India, Jones Lang LaSalle. In the absence of REITs, they can sell it to some other funds where again there are very limited options. But for residential sector exit is automatic which is one of the reason for the overriding thrust on investment in the sector, he adds.
There are two types of funds, one with greater risk appetite and keen to invest in projects that are under development and the other is conservative that prefers income generating assets where the yield will be in the region of 9-10 percent per annum. There are funds which are looking at 18-20 per cent return on investment with the project lead time spanning three years and above.
Unlike earlier, realty funds have become more matured now as they have learnt many lessons over a period of years on how India is operating, urbanisation drive, market potential and the opportunities shrouding the residential sector. Valuations have become more realistic people are looking at current market value of land.
According to industry sources, out of 300 funds that entered the Indian market since 2006, only 100 funds are active in the last five years. A checklist of criteria for selection of real estate projects includes track record of the developer, transparency, market volatility, demand for quality homes, infrastructure in the city in terms of master plan, tolerance of people, cosmopolitan outlook, etc.