Realty to attract $10-20 bn investment

MUMBAI: Optimistic of country's real estate sector, leading Private Equity (PE) players feel $10-20 billion would pour into the sector in the next three years.

As much as 27 per cent of the 50 PE firms responded to a recently-released Ernst & Young (E&Y) survey, however, expect USD 20 billion would be deployed into the sector, while 68 per cent believe that it would hover around $5-10 billion in the same period.

The remaining five per cent believe that total investment would be less than $5 billion.

All 50 PE players rate the Indian real estate sector as an 'attractive' destination and 79 per cent of them feel that India is a 'very good' or an 'excellent' investment destination compared to other Asian countries, justifying the current euphoria about Indian real estate amongst global investors.

An established and preferred mode of investment for foreign investors to enter into the Indian real estate market, PE funds played an aggressive role in the last fiscal and the same trend is likely to continue to dominate the real estate transaction activity in 2007-08.

As much as 63 per cent of the respondents feel that the current growth momentum witnessed in Indian realty would continue for the next five years with a sustained growth of 25 per cent year on year.

They, however, believe that high yields might not be sustainable for a very long-term as 72 per cent of them feel that 25-30 per cent yield could be witnessed for another two - three years.

PE firms believe that the preferred mode of investment is to take the special purpose vehicle (SPV) route and not to go for enterprise level investment, which 84 per cent of the respondents rate promoters' background and the quality of the management as the most important parameters before taking any investment decision.

More than 40 per cent of these firms, whose investment portfolio is mainly limited to the Tier-I cities, say presence of the IT and ITeS industry has an impact on their investment decision, however, a sizeable segment of investors are willing to look beyond the IT and ITeS industry.

Logistics and warehousing seem to be the next buzzword in the real estate sector with 60 per cent of the respondents feeling that this asset class, though currently at a nascent stage of development in India, holds out a lot of promise for future.

"Transparency has remained the biggest deterrent to real estate investment in India. Greater concern, however, is the fact that not much significant improvement has taken place on this front," Ernst & Young said in the report.

Rupee appreciation on the investment flow into the Indian real estate sector is expected to have a 'negligible impact' on the investments, as per 42 per cent of the respondents.
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