FLASH MARKET REPORT INDIA WHY BIG TICKET SOVEREIGN, WEALTH & PENSION FUNDS ARE NOW SCOUTING FOR INDIAN DEVELOPERS
SEPTEMBER 2014
A Cushman & Wakefield Research Publication
In what can be touted as a landmark transaction for the Indian residential real estate sector, the Government of Singapore Investment Corporation (GIC) entered into a INR 1,500 crores (US$ 250 million) joint venture (JV) agreement directly with Bengaluru based company, Brigade Enterprises. Through the joint venture, investments will be made in projects located in South India. This is the second transaction of the kind wherein a fund invested and partnered directly with a development company; usually they pool into a corpus or channel investments through various equity instruments. In 2012, Mumbai based company, Godrej Properties had inked a similar deal with Dutch pension service provider, APG for a sum of INR 770 crores (US$ 130 million) to be deployed over a period of 7 years. KEY TAKEAWAYS Routing investments indirectly through third party fund raised
by general partners/ fund managers allowed GIC and APG to diversify their risk (by exposure to various developers). However, recent transactions (made to Godrej Properties and
Brigade Enterprises) indicate that these funds are now demonstrating a higher level of gumption and confidence in the Indian market, particularly, in the residential sector. Post the 2008-2009 economic crisis, such large sums of
investment have been rare. The two transactions mentioned above usher in a wave of optimism and confidence, in that, developers can now prepare to tap into such agreements. Companies can capitalize on the willingness of sovereign, wealth or pension funds to invest directly and hence, cash in on deep pockets at the land acquisition stage. It must be noted that of the new investments committed,
significant portion can be attributed to single LPs (limited partners)/investors who have well-lined purses such as Abu Dhabi Investment Authority (ADIA), Qatar Investment Authority (QIA), APG, Canada Pension Plan Investment Board (CPPIB); these enterprises are now ready to commit upwards of USD 200 million per platform (on an average).
1
2014
By investing with companies directly over a long time frame,
re-investment of capital might be simpler as significant inflationary pressure, which has been a specific challenge for India in the past few years, can be negated. For development companies, a tie up with a reputed, global
investor can mean easier access to growth capital, which is assured against pre-agreed parameters. Partnership with world renowned funds can enhance brand value and help market projects better. Investors who enter into such agreements with real estate
companies make an inroad into the future pipeline of the company; funds can exploit this platform to spot and seal other lucrative deals in the market. There is also a possibility of becoming an exclusive partner.
GIC's decision to partner with Brigade Enterprises in Bengaluru was backed by strong fundamentals of the Bengaluru and other southern markets. As depicted below, southern cities (Bengaluru, Chennai and Hyderabad) contributed 40% to the total number of launches in India over the past three years. Among the three main southern cities, Bengaluru is the strongest market with 63% share in unit launches. The city, backed by strong IT-ITES sector dynamics, also witnessed robust capital appreciation over the same time frame. UNIT LAUNCH TRENDS (2011 - H1 2014)
Southern Cities - Major Contributor to Unit Launches
Bengaluru - Dominating Unit Launches in South
GIC's confidence in Brigade Enterprises drives home the Southern Cities 40%
point that direct partnership with a developer is gaining acceptance in the global investment community. It also makes a strong case for partnering with regional developers that operate in specific micro markets, testifying that such investments are not limited to large, national players alone. PRIVATE EQUITY INVESTMENTS MADE IN THE RESIDENTIAL SECTOR Year
Quantum of investment made (USD million)
2011
512.3
2012
536.6
2013
580.2
2014 (H1)
374.8
Chennai 26%
Other Cities 60%
Bengaluru 63%
Hyderabad 11%
Note: Data for Top 7 Cities including Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune Source: Cushman & Wakefield Research
Along with significant contribution to unit launches, Bengaluru residential investments have delivered higher returns than other cities in India.
CAPITAL VALUE APPRECIATION TRENDS (2011 - H1 2014)
Source: Cushman & Wakefield Research
Bengaluru: Leader in Capital Value Appreciation
OUTLOOK Our view is that such transactions will gain momentum in India, especially in markets such as Delhi-NCR (National Capital Region), Mumbai, Bengaluru and Pune, which are characterized by high demand and presence of large, reputed developers. Companies with a well-known, well-regarded brand name, delivery track record, and robust pipeline of investments/projects will stand to gain from this trend. A JV with a developer by a LP/ Investor for a pool of identified and future projects will definitely be the new trend in the market going forward, leading to a healthy competition among companies. Overall, over a period of time, it might lead to higher standards of execution.
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Bengaluru
Pune
Chennai
Delhi-NCR
High-end Segment
Source: Cushman & Wakefield Research
Kolkata Mid Segment
Mumbai
Hyderabad
WHY BIG TICKET SOVEREIGN, WEALTH & PENSION FUNDS ARE NOW SCOUTING FOR INDIAN DEVELOPERS
A Cushman & Wakefield Research Publication
Going forward, we anticipate Mumbai, Delhi-NCR and Bengaluru to attract the attention of large funds given that 69% of total unit launches in India take place in these top three cities. UNIT LAUNCH TRENDS – TOP 3 CITIES (2011 - H1 2014) Top 3 Cities - Majors Contributor to Unit Launches
Bengaluru and Delhi-NCR: Dominating Unit Launches in Top 3 Cities
Delhi-NCR 43%
Other Cities 31%
Mumbai 21%
Top 3 Cities 69%
Bengaluru 36%
Note: Data for Top 7 Cities including Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune Source: Cushman & Wakefield Research
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Author of the report: Priyanka Ghosh Analyst Research, India priyanka.ghosh@ap.cushwake.com +(91 22) 6771 5555
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