Finally, PE funds opening equity tap for real estate cos

Private equity (PE) investment in real estate has always been a double-edged sword -- while PE funds have eased a liquidity crunch in the sector, this has come with high interest rates.But now, PE players are finally considering equity level investments in real estate companies, report CNBC-TV18's Kevin Lee and Alexander Matthew.2015 was a record year for private equity in real estate - with almost Rs 15,000 crore of foreign funding coming into the sector. However, more than half of this was in the form of debt -- meaning cash strapped developers who accepted this money paid high interest rates. But there's some relief for developers now, as green shoots in the market are prompting more funds to consider putting their money into equity.The flows have already begun. Kotak Realty Fund, Piramal Fund Management and Motilal Oswal Real Estate are a few of the domestic players who have launched new funds worth close to Rs 7000 crore. These funds will offer a range of funding options including equity.Says S Sriniwasan, CEO, Kotak Realty Fund, "Most of our investments for the last five years have been through structured debt. We feel that the debt market has become overcrowded and equity is the need of the hour, and hence we are raising money for equity investments in real estate companies." As for foreign funds, the new Real Estate Regulatory Bill could be a big boost. That's because a perceived lack of transparency in the sector has been one of the major roadblocks to equity investments."More developers will start following corporate governance, financial discipline, and as overall transparency improves, interest from PE players will also pick up," says JLL India Head of Research Ashutosh Limaye. "These were the challenges that they kept struggling with, and if a system or policy takes care of these challenges, it is much easier."More equity investments will mean cheaper capital for developers. But more importantly, it reflects renewed faith in a sector that has been plagued by a trust deficit for four years now.