PE firms see bonanza in residential realty sector

MUMBAI: India's cash-starved residential real estate market is set to get a boost from foreign and domestic private equity firms, which are lining up big bets worth hundreds of millions of dollars for the sector.

The domestic residential real estate space has been in a rut for years with failed and delayed projects putting buyers off. Developers more recently have been hit by a credit squeeze as banks struggle with bad debts and a crunch in the shadow banking sector. Private equity firms are now swooping in to buy assets at attractive valuations, say industry insiders, as regulatory changes and a more dovish monetary policy outlook bode well for the sector.

"With major impetus being given to affordable housing ... PE investors are sensing a big opportunity in this segment," said Anuj Puri, chairman at Anarock, a real estate consultancy firm. "Expected 8-10% annual return in affordable segment of residential real estate is attracting not just Indian investors but also foreign entities from US, Singapore and Canada."

Blackstone Group, one of the largest owners of commercial real estate in India, this month agreed to buy a majority stake in Aadhar Housing Finance - an affordable housing project, and committed Rs 800 crore ($112 million) of additional equity to the asset. Piramal Enterprises and Ivanhoe Cambridge, the real estate arm of Canadian fund Caisse de depot et placement du Quebec (CDPQ), last week announced a $70.2 million investment in Palava - a project of Lodha Group on the outskirts of Mumbai.

Several domestic real estate funds, including HDFC Property Fund and Kotak Realty Fund, are also scouting opportunities in the real estate space, said industry sources aware of the talks.

And one industry source said that Canadian asset management firm Brookfield Asset Management is exploring roughly half a dozen residential real estate investments and it aims to nearly double its bets in the space to over $1 billion, from $450 million in the coming year.