Slowdown effect: PE funds avoid commercial realty projects

The global economic slowdown has derailed demand for commercial properties. This implies that private equity funds are now reluctant to fund commercial projects, and they prefer to put in their investments in affordable housing projects and construction companies.

Here is a transcript of Priyanka Ghosh’s comments on CNBC-TV18. Also watch the accompanying video.

Typically, private equity (PE) funds park as high as 50% of their funds in realty commercial projects. However, that scene has changed. More than 60%–70% of India's IT/ITES demand in terms of office spaces comes from the US and that comprises of almost 80% of the total demand in India. This has taken a severe beating owing to the global slowdown. Thus, the PE funds are now looking at affordable residential projects. Leading real estate developers such as Unitech, Omaxe and Puruvankara are bullish on the affordable real estate segment. PE funds are picking up this cue.

Indiareit said that it is in talks with a Chennai-based construction company.

Kotak Realty has invested an undisclosed amount in a deal with Janapriya's affordable housing project this year. Kotak Realty has invested Rs 30 crore in NDR Warehousing.

Walton St Capital said that debt requirement in residential projects are lower than commercial projects, hence, affordable housing is attractive.

Merill Lynch is investing Rs 200 crore in DRS Logistics. HDFC Realty fund has also invested in two companies––Pune-based Vascon Engineering and Mumbai-based New Consolidated Construction.