Monday, June 16, 2008
Is it high time for real estate based PEs to enter Indian Market?
Posted by Saurabh Mangal at 2:53 AMIndian real estate market has been in a booming phase for quiet sometime. The macroeconomic picture of world including India is getting deteriorated. Recently, inflation in India touched 8.75% which is highest in 7 years. Interest rates are also rising in India and every now and then property exhibitions are organized by the reality developers in major metros. These are indications that the real estate prices which were booming for some time in India, will take a knock from here following the US housing market.
Despite this gloom doom scenario for real estate, there has been continuous interest from investors for Real estate focused PE funds in India. According to an article published in livemint in May 2008, the PE firms that enter the Indian reality market expect a 20-25% Internal Rate of Return (IRR). However, similar kind of IRR opportunities are available in some of the Real estate pockets of US also which is an obvious preference over any emerging market due to lesser risk associated in terms of completion of the projects.
Although, the PE firms always lookout for early exit opportunities, the investment horizon has to be increased by real estate focused PE firms entering India. The valuations of Indian real estate companies have come down drastically. Major public companies which attracted PE investments, like Unitech, DLF, HDIL, are trading at their year lows. According to an article in ET, the IRR expectations for PE firms have increased off-late due to increased risk. For long term PE investors this seems to be right time to enter the market as many deals can be struck at more favorable terms. The deal time can also be taken adequately which was not the scene sometime back when the valuations were at peak and the deal closure cycles seemed to have become shorter from an average of three to six months to three to six weeks.
Despite this gloom doom scenario for real estate, there has been continuous interest from investors for Real estate focused PE funds in India. According to an article published in livemint in May 2008, the PE firms that enter the Indian reality market expect a 20-25% Internal Rate of Return (IRR). However, similar kind of IRR opportunities are available in some of the Real estate pockets of US also which is an obvious preference over any emerging market due to lesser risk associated in terms of completion of the projects.
Although, the PE firms always lookout for early exit opportunities, the investment horizon has to be increased by real estate focused PE firms entering India. The valuations of Indian real estate companies have come down drastically. Major public companies which attracted PE investments, like Unitech, DLF, HDIL, are trading at their year lows. According to an article in ET, the IRR expectations for PE firms have increased off-late due to increased risk. For long term PE investors this seems to be right time to enter the market as many deals can be struck at more favorable terms. The deal time can also be taken adequately which was not the scene sometime back when the valuations were at peak and the deal closure cycles seemed to have become shorter from an average of three to six months to three to six weeks.
Thus, in my opinion this seems to be the right time to launch India focused real estate fund which can do fund raising in next 4-5 months and evaluate deals after that, as in next 4-5 month the valuations would be looking more attractive. Also, the funds can look for Private Investment in Public Equity (PIPE) deals as most of the listed Real Estate firms in India are currently trading at their year lows giving attractive valuations.
Labels: My views on deals
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2 comments:
Not bad!
Rohit
Uncle - what happened?
Nothing after the initial burst of 5 writeups! :-)
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