News: Domestic private equity funds getting bullish on realty bets again-25-04-2022
Revival in demand for housing driven by a combination of factors including record-low interest rates and pandemic-induced realisation of the need of home ownership is helping attract liquidity from these institutional investors.
Domestic private equity firms are showing higher confidence in real estate investment s led by improved market dynamics across key property markets of the country. Rising number of fund raising and deployment transactions by these institutional investors is clearly indicating renewal in their interest in the market
Revival in demand for housing driven by a combination of factors including record-low interest rates and pandemicinduced realisation of the need of home ownership is helping attract liquidity from these institutional investors.
“Improved residential sales momentum is helping developers get more optimistic in terms of their business activity and they are activating new growth plans. This has resulted in more demand for support from institutional investors. Funds are also keen to participate as the revival in demand after a long time ensures good returns,” said Vipul Roongta, MD & CEO, HDFC Capital Advisors, one of the largest affordable housing funds globally.
HDFC Capital has recently raised over $1.22 billion or 9,300 crores through HDFC Capital Affordable Real Estate Fund - 3 (H-CARE-3), with Abu Dhabi Investment Authority as a key investor, to invest in residential real estate. The sovereign wealth fund of Abu Dhabi has also last week acquired a 10% equity stake in HDFC Capital, clearly indicating its confidence in the growth potential. Investments by domestic funds into India’s real estate sector has doubled in size during the just concluded financial year 2022. It has risen to $600 million in 2021-22 from $290 million in the 2020-21, showed data from Anarock Property Consultants. The increasing confidence of domestic funds reflects the return of overall positivity after a harrowing year of pandemic disruption and uncertainty.
“Contextually, the intent and purpose of domestic fund managers is to increase their footprint because they have more sources of capital, and the overall investment rationale has become lucrative and interesting. This trend will continue well into the future, especially since the RBI is restricting banks from giving funding for premiums. This provides domestic private equity funds more opportunities to fill the gap,” said Shobhit Agarwal, MD & CEO - Anarock Capital.
Several funds including Kotak Investment Advisors, ASK Property Investment Advisors, Motilal Oswal Real Estate and Lumos Alternative Investment Advisors are either raising or have raised funds to deploy in property markets.
The residential real estate sector has continued to witness steady tailwinds of accelerated consumer demand for homeownership, coinciding with near historically low mortgage rates.
According to market experts, record low interest rates, a key factor helping the market achieve higher sales traction, may move up a bit towards the end of this year. However, that will not affect the demand in a significant way and that rise is likely to be absorbed. Mathew Kurian, Vice President of ratings agency ICRA believes even with an increase in interest rate on home loans by 50-75 basis points from current levels, the demand is expected to remain firm.
“The sharp recovery in demand in the aftermath of Covid has improved pricing flexibility, particularly in completed projects. In FY2023 as well, the prices are also expected to be hiked, depending on the project specific sales traction, to compensate for the rise in construction cost seen in recent quarters. Healthy demand prospects and pricing flexibility in completed projects can help developers to maintain profitability margins,” Kurian said.
ICRA has revised the outlook for residential real estate for 2022-23 to Stable from Negative, supported by multi-year high sales that in turn is driven by increasing preference for home ownership, improved affordability, all-time-low home loan interest rate, among other factors.
The pace of residential sales across property markets is expected to sustain, with the sales in top seven cities expected to grow by 3% in 2022-23, despite a high base of 2021- 22. The growth in volumes in the financial year 2022 has been complem ented by improvem ent in average realizatio n as a result of changing product mix and price hikes implemented. This augurs well for the institutional investors’ investment thesis and outlook. Ends.
The pace of residential sales across property markets is expected to sustain, with the sales in top seven cities expected to grow by 3% in 2022-23, despite a high base of 2021-22. The growth in volumes in the financial year 2022 has been complemented by improvement in average realization as a result of changing product mix and price hikes implemented. This augurs well for the institutional investors’ investment thesis and outlook.
