Mumbai Metropolitan Region

Despite being the most expensive property market in the country, Mumbai Metropolitan Region continues to be the prime market for attracting investor interest. Structured equity or debt was the preferred route of investment as the city received the major portion of private equity investments in the past year.

Out of the total Rs 19,500 crore, Mumbai received more than 1/3^rd or 34 % investments in the sector in 2015, showed a JLL India study. The city was followed by Delhi-NCR, Chennai, Bengaluru and Pune receiving 29%, 14%, 11% and 5% respectively. Talking about this trend, Shobhit Agarwal, managing director-capital markets, at JLL India said, “The preference for these cities reflects learning from past experience. While investors remain cautious about which cities to invest in, what is interesting to observe is that the ratio of structured equity and debt was more than half of the total investments received.”

Rubi Arya, Executive Vice-Chairman, Milestone Capital Advisors anticipates equity deals to gain a foothold over the next two three years because of an expected increase in commercial  real estate funding due to instruments like real estate investment trusts. Arya said, “We have seen proven returns from such structures and will continue introducing products in this space for some more time. But from a safety viewpoint, structured debt will remain preferred route for investors.”

Core commercial assets are being preferred over asset classes such as residential, hospitality and retail for plain equity investments. The preference indicates how investors are circumspect despite being optimistic about major potential gains in real estate. Also, important has been the preference amongst investors to invest in projects of developers with a good track record and credibility.

While residential and office projects continue to be the focus for PE investors, entity-level investments and platform-level deals come into the limelight, indicating increase in investor confidence. The JLL report said that a total of Rs 6,048 crore worth of entity-level equity yes deals were witnessed. Deals such as Goldman Sachs and Warburg Pincus investing in Piramal Realty and Blackstone buying Alpha G:Corp aggregating to around Rs 4,000 crore were amongst the 10 entity-level investments witnessed in the year 2015.

In terms of asset focus, despite receiving a reasonable share of funding, residential projects have not received much from equity investment. At the same time, a significant sum of equity investments has been towards income-yielding office projects. Although residential and office will attract a majority of investments, retail is expected to soon gain a foothold in the market.