Private Equity and Indian Real Estate: The Bigger Picture

Private Equity and Indian Real Estate: The Bigger Picture

Stag Investors buy into the “grey market” before a Listing takes place, selling out immediately after the stock is traded in the hope the pre-market has understated the share price. The Stag Investor is the Mayfly of the Financial Markets; here and gone in a moment, paying little if any attention to the actual performance of the company in which he was so briefly a shareholder. Private Equity (PE) sits at the other end of the spectrum: investing for the long run, often taking a controlling position on the board and shaping the company’s future in the hope of long-term gains. If the Stag Investor is our Mayfly, Private Equity is more of a Galapagos Tortoise.

So it is interesting that Private Equity Investment has now emerged as one of the cornerstones of the resurgent Real Estate Sector in India. At the very least it speaks well for the Sector’s long-term prospects.

More or less stagnant up to 2014, the PE contribution to Real Estate on the subcontinent has rocketed in recent years (according to Knight Frank’s latest sector report) and is likely to end the year on a record-breaking high of $4 Billion.

Blackstone, a leading Private Equity House, is now one of the largest landlords of office space in India with its recent deals (struck with L&T Seawood and K. Raheja) racking up more than USD 200 Million each; and in overall terms the cumulative PE investment for the first nine months of this year already exceeds the last five years taken together. As Knight Frank note in their report, somewhat archly, “institutional investors have already smelled the coffee”.

Between 2011 and 2014 the average aggregate PE investment in Indian Real Estate was $ 2.1 Billion; that figure rose to $3.3 Billion between 2011 and 2014 (an increase of more than 57%) and the bulk of it was destined for pre-leased office space and industrial properties, which is suggestive (“strongly suggestive” Knight Frank believe) of a trend for new investors to shy away from the risks traditionally associated with execution, regulatory approval and marketing on more conventional “off plan” projects in the residential sector; all of  which suggests that the business and residential segments of the sector are running on different tracks.

But not so fast. That might also give us a clue for one of the key drivers behind the general resurgence of PE interest in Indian Real Estate since 2014, as well as a pointer for the way ahead.

2014 was, of course, the year that Prime Minister Modi’s Government instituted its radical reform programme for the economy; a programme that came to include the Real Estate (Regulation and Development) Act of 2016 (RERA) and a new regime for REIT listings on the Bombay Stock Exchange, culminating in this year’s Goods and Services Tax all of which have combined to turbocharge real estate investment in this, the fastest growing large economy on the planet. So it seems unlikely that the residential sector will continue to lag behind in the manner it has over the past three years. All suggestions are that the two segments of the sector will start to converge.

The Red Ribbon Real Estate Fund aims to deliver income and capital growth in the medium to long term by investing in real estate projects, and Indian real estate in particular; and unlike almost every other real estate fund it is open-ended, enabling investors to exit on notice after the initial three-year lock-in period rather than have their capital tied down for the long term on a conventional private equity model. The Red Ribbon RE Fund offers a unique blend of long-term growth potential with medium-term liquidity.

Read about Knight Frank Report here: www.knightfrank.co.uk/research

Read about the Red Ribbon Real Estate Fund here: https://redribbon.co/investment-products/funds/real-estate-fund/