Macquarie

At a time when cash flows are weak owing to slump in home sales, real estate developers are relying heavily on external sources of capital to drive business. To ease the woes of Indian realty, it is reported that Macquarie Infrastructure and Real Assets (MIRA), an arm of Australia’s Macquarie Group Ltd, is set to invest in the domestic real estate market.

“Macquarie has been planning to invest in real estate in India for a while and has now created a special team to make investments in the sector. This is an appropriate time for Macquarie to start investing because there is a lot of demand for capital, particularly equity, and valuations are reasonable after a long spell of deceleration,” said a source familiar with the development.

MIRA has appointed R.K. Narayan as managing director of its Indian arm, Macquarie Infrastructure and Real Assets (India) Pvt. Ltd, to head real estate investments in India.

The company is in talks with Tata Housing Development Co. Ltd, for setting up an investment platform to invest in luxury residential projects. If the deal is successful, the partners may thrust at least $200 million of equity capital into it, though the shareholding may vary.

MIRA is a large infrastructure asset manager worldwide and its growing real estate portfolio includes 290 retail, commercial, residential and industrial properties in China, Mexico and Australia.

With this announcement, Macquarie joins a slew of other global investors like Warburg Pincus LLC, Goldman Sachs Group Inc. and GIC Pte. Ltd who have already funded real estate projects in India through private equity during the first nine months this year.

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Reinforcing faith in India’s real estate sector, amid a two-year-long slowdown that continues to see apathetic sales and an inventory pile-up, foreign institutional investors (FIIs) and the private equity (PE) funds made a beeline to invest in residential and commercial projects this year.

According to data from VCCEdge, PE funds invested about $2.4 billion in the real estate sector, across 53 transactions, during the first nine months this year surpassing the overall investment of 2014. Deal sizes have also increased with residential projects both luxury & affordable attracting a substantial amount of capital.

The Government of Singapore Investment Corp. Pte Ltd (GIC), a sovereign wealth fund in the real estate sector, plans to invest Rs.1,990 crore (about $300 million) in two upcoming residential projects of DLF Home Developers Ltd, a subsidiary of DLF Ltd, through a joint venture.

In another deal, Marquee investors Warburg Pincus Llc and Goldman Sachs Group Inc. have pledged about Rs.2,700 crore ($420 million in Piramal Realty, the new real estate development arm of the Piramal Group. Besides the Piramal investment, Goldman Sachs has also aligned with realty co. Nitesh Estates Ltd to jointly invest up to $250 million in profitable commercial real estate assets.

“Asset prices and valuations have become more reasonable, entry hurdles are lesser and the larger regulatory framework is now more favorable for global institutional players to enter into business alliances in domestic real estate,” opines Amit Goenka, managing director and chief executive of Nisus Finance Services Co. Pvt. Ltd, which specializes in real estate services.

Funds raised by realty firms are largely being used to refinance existing loans, as cash flows remain weak due to sluggish sales. Developers need capital for project execution to accelerate delivery of homes.