The year 2016 could bring the much-needed revival in Indian real estate as around 70 per cent of the respondents of a survey jointly conducted by RICS-JLL foresee an improvement in sales over the next 12 months.
The respondents to the survey – Peering into 2016: Taking Pulse of Investor Preference – include a range of investors including private equity players.
According to the findings, investors have voiced that though the refinancing cycle is not expected to meet its logical conclusion in 2016, the number of successful exits will increase over 12 months.
Developers have gone for multiple rounds of refinancing given the cash flow crunch. End-user demand leading to flow of capital and return of equity capital in the market is expected to break the debt cycle most developers find themselves in.
Respondents also said there will be continued consolidation over the next 12-18 months, with an increase in distress deals. It also noted that pure equity transactions will make a comeback, with a majority of respondents expecting its share to increase substantially in the case of select ‘Grade A’ developers.
Real estate financing and refinancing are dominated by debt transactions. Equity funds had vanished from the market as investors turned highly cautious over the years and turned towards debt. Currently, the market is flooded with debt transactions by
non-banking finance companies and private equity funds.
However, with the economy showing signs of firmness and investors gaining confidence in India, equity funds are on their way back in real estate. A host of PE firms have launched equity corpus after a long gap and global investors are already back with equity strategy in the market.
Investors surveyed also felt that while office cap rates will remain the same, the average return on investment (ROI) expectations on the other hand would actually decrease over the next 12 months.
The report highlighted that commercial office and mid-segment residential property will be the top two preferred choices of investors with IT/ITeS office rounding up the third spot.
Most investors prefer Mumbai and Bengaluru as top investment destinations while Pune, pushing away NCR, came as a close third.
Investors also have their hopes pinned on passage of Real Estate Regulatory Bill which will positively impact the sentiment by boosting buyer confidence. The recent relaxation of FDI rules is also expected to give a fillip to the sector and enhance investment in smaller projects.
The year will also see Chinese and Japanese investors participate in the Indian real estate story. It noted that this trend is something new as historically the sector has attracted FDI mainly from countries like the US and the UK.
Chinese and Japanese developers and investors have already started holding discussions with developers across the country. Industry experts say they are actively exploring investment and development opportunities with local players. Recently, Japanese investment firm Genkai Capital Management put in $10 million in a project of southern realtor Shriram Properties.