Global Investments To Help Developers Acquire New Projects: Icra

New Delhi: With global investors committing over $2 billion in the Indian real estate sector, credit rating agency Icra has said developers would be able to acquire new projects and ensure a healthy launch pipeline.

The commercial real estate sector has witnessed increasing participation by various large global funds and private equity players, buoyed by a gradual recovery in the sector since fiscal year 2014-15, it said.

Of late, it added, many of the global institutional investors have also started looking at housing segment favourably.

The tie-up with international investors would help real estate developers build a healthy launch pipeline, it said.

“The stress in the industry has made available ample of investment opportunities in the sector at attractive rates. With over $2 billion of capital commitment expected under various platforms, the leading developers would be able to acquire new projects thus ensuring a steady launch pipeline over the medium term,” Icra Ratings VP Shubham Jain said.

The equity nature of such partnerships would reduce the burden of providing any committed exit to partners, he added.

Icra noted that instead of land-banking, the past decade saw asset-light models of development, like joint development agreements (JDAs), joint ventures (JVs) and more recently, development management agreements (DMAs) gaining prominence.

This shift from the land-banking model to risk-reduced project development has also attracted many global investors. Among the first to do so was Godrej Properties Ltd (GPL), which launched a USD 200 million investment platform in partnership with Dutch pension fund asset manager APG Asset Management NV in 2012, following it with an additional $275 million platform with the same investor in March 2016.

Tata Housing and Brigade have also set up similar investment platforms. DLF has raised about Rs 2,000 crore from GIC last year for its projects in the national capital.

The investment platforms provide the developers with access to capital, which can be deployed across projects.

The investment is typically routed through the project special purpose vehicle (SPV), with the costs and profits to be shared by the partners in a pre-determined manner as per their respective economic interests.

“While the private equity investment inflow in the industry has been healthy, the domestic real estate developers have been grappling with challenges such as subdued sales as well as cash flows,” Icra said.

Given the limited supply coupled with the delays in execution across projects, there has been a shift in consumer preference towards projects from large and reputed players.

This has helped support the sales for large developers, though the overall demand continues to remain muted.

“By partnering with well established and experienced developers, having a demonstrated track record of execution as well as delivery of projects, the private equity investors are able to participate in the domestic real estate sector while reducing the exposure to execution as well as counterparty risk,” Mr Jain said.