2016: A review of Equity and Debt Investments in India

2016: A review of  Equity and Debt Investments in India

By Mr. Anuj Puri, Chairman & Country Head, JLL India

The year 2016 saw equity investments on a return journey to India. Interestingly, the focus of investors this time around has shifted from IRR (Internal Rate of Return) to quality of partners.

Mid and large-scale developers with strong corporate track records and a focus on corporate governance are set to earn equity investors’ backing going forward.

More than USD 2.8 bn worth of platform-level partnerships are already in place, but deployment is awaited.

Consolidation is on the cards as smaller developers find it increasingly difficult to continue amidst the liquidity crunch. Cash-starved developers are looking at asset monetization, and cash-rich and/ or PE-backed developers are bound to grow much faster than others.

Mr. Anuj Puri, Chairman &
Country Head, JLL India

With RERA ensuring limited cash outflows until completion of project and lower demand for properties because of demonetization and the Benami Property Act, developers will remain under pressure. With limited scope for further leverage, developers will be open to providing good entry points to long-term equity investors. While a few equity-related risks would continue, attractive entry points will provide a higher margin of safety to equity investors.

In the last six years, India has seen USD 5.85 bn of investment exits at 1.26X returns for pure equity deals from the real estate sector, of which USD 1.64 bn have been since 2014.

Residential projects and townships have given the best exit values to investors, followed by the IT and commercial asset class and mixed use developments.

However, in terms of multiples, it was land that unintentionally provided the best returns. Due to the high appreciation in land prices, funds saw good returns on their investments in 2006-07, but they invested in land and exited from land instead of finished developments, implying that they could not exploit the full potential.
 

Source: JLL Capital Markets Research
 

Share: