Capital Markets

A lot has been written about the flow of funds (rather the lack of funds) in the real estate sector of India. However, an in-depth analysis of how this trend has changed in the last decade has not been detailed out many times. This report seeks to trace the course of capital flow and analyses key factors that brought forward different kinds of lenders at different stages of economic growth and reforms in India.

With many positives now backing the Indian PE / VC story, strong 1Q numbers and the deal momentum in play, we believe that PE / VC investment activity in 2018 may eclipse the record highs seen in 2017. The changes unleashed by the Insolvency and Bankruptcy Code (IBC) have opened India to a new PE asset class of stressed assets/distressed debt, adding more wind to the already fullsails of the Indian PE/VC story. The infrastructure asset class too is expected to see a lot of investment dollars, especially in the roads sector as the government looks to privatize arterial routes to fund their ambitious roads’ capex plans. Real estate is also projected to see good investment activity, especially commercial real estate as more “REITable” platforms get built.

Investment into real estate (legal considerations) in China, Indonesia, Malaysia and Vietnam.

PRIVATE REAL ESTATE CONTINUES TO DELIVER FOR INVESTORS

Investors surveyed in June for the Preqin Investor Outlook: Alternative Assets, H2 2017 reported high levels of satisfaction with private real estate returns. The majority (95%) of respondents reported that the performance of their private real estate portfolios had met or exceeded their expectations over the past 12 months, and 91% felt that they had met or succeeded over the past three years. It is clear that investors have a generally favourable view of the asset class, with 44% reporting a positive perception of real estate, compared with just 14% that have a negative perception.

Global real estate performed exceptionally well in 2017, with volumes up sharply and values ahead. Yields compressed 12 basis points on average, while prime rents rose +1.7% and investment volumes jumped +13.2% in USD terms, ahead of even our own above consensus forecast.

While the momentum this seemed to be feeding into 2018 has been shaken by heightened fears of a trade war as well as renewed stock market volatility thanks to inflation risks, the existing balance of pricing, supply, and demand point to a further healthy year. Indeed, while stock is hard to find we are forecasting a small gain in global volumes thanks to more development, an increase in profit taking, and a release of stock via corporate activity.