With IT projects taking a backseat on the investment front, private equity (PE) funds are cosying up to residential, commercial and hospitality spaces in south India.
Pragnya, a Mauritius-based private equity fund focussed on the real estate market in India, has so far invested about $40 million in realty projects, including an integrated township project by L&T in south India, and expects its investments to reach $100-110 million this year.
It is also planning to come out with a $150-million Pragnya Fund 2, which will invest in realty and hospitality projects, particularly in the South.
In December 2007, Red Fort Capital, a global real estate private equity fund, announced a Rs 400-crore investment plan for Chennai's realty market over the next six months. It has acquired 10 acres of land for a large residential project in Chennai.
The company has already invested Rs 1,200 crore on projects in Bangalore and Hyderabad.
"The business environment in the South has been congenial with good administration, better law and order, and higher literacy levels. Job creation by the industry has fuelled creation of grade A office space. The subsequent residential development has had a spillover impact on hospitality. If one takes a multi-year view, this process will continue with the positive impact of job creation spreading to places such as Visakhapatnam, Coimbatore, Mysore and Kochi. The momentum this region has developed is the reason why investors are being drawn," Subba Dukkipati, managing partner, Pragnya, said.
Sanjay Chugh, associate director, Jones Lang LaSalle Meghraj, said that PEs are bullish on the South as a potential investment region due to clear titles of land parcels, stable market, developers who are easy to work with, and quick decision-making.
He noted that projects with a capital infusion of Rs 60-200 crore attract PE investments.
PEs are expecting a minimum post-tax IRR of 35 per cent, which had dropped to around 25 per cent a couple of weeks ago, he said.
Asked whether the withdrawal of the Emaar MGF IPO would affect the flow of PE investments into realty projects, Dukkipati said that most PE investors have a multi-year horizon, and developments in the financial markets would have no immediate impact.
"Investors, however, cannot afford to ignore business cycles, and therefore, any slowdown in the economy would colour their outlook. It is our view that high land prices, combined with increasing inputs costs have made it difficult to create sufficient affordable housing. However, the longer term fundamentals are sound and investment activity will continue after market corrections are factored in," Dukkipati said.
Hospitality projects in the region are also attracting private investments. Last month, Sabari Inn, which promoted two boutique hotels in Chennai, secured investments of Rs 62 crore from ICICI Prudential PMS Real Estate Securities Fund to fuel its growth plans.
ICICI Prudential PMS Real Estate Securities Fund, which has about Rs 800 crore under management, is also reported to have lined up investments of about Rs 150 crore in various projects to be announced soon.
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