Real estate and infrastructure drove buyouts in 2019, says report

In 2019 , buyouts in real estate and infra were $11.6 billion while in other assets it stood at $4.6 billion.

The buyout deals in real estate and infrastructure sectors were 2.5 times of other asset classes, said a new report by audit and consulting firm EY and the Indian Venture Capital & Private Equity Association (IVCA.)

In 2019 , buyouts in real estate and infra were $11.6 billion while in other assets it stood at $4.6 billion. “While consistent growth in buyouts has been a major driver of the overall growth of PE/VC investments for the past three years , there was a slight difference in nature of the deals in 2019. Unlike in 2017 and 2018, where the growth in buyout activities was in traditional PE/VC asset class, 2019 saw growth in infrastructure and real estate asset classes,” it said.

In 2019, 59 per cent of total value of investments in real estate was buyouts, it said. In 2019, investments in real estate went up by 33 per cent at $6.1 billion. “A large portion of them were buyout deals which is a significant divergence from the earlier trend, where a large number of investments in real estate sector were credit investments,” the report said.

According to the report, buyouts in real estate have risen from 0.4 per cent in 2015 to 3.6 per cent in real estate deals.

In 2016, 2017, and most of 2018, large number of investments in real estate were driven by credit platforms funding residential and commercial developments, capitalising on lack of traditional modes of funding for the real estate sector, which was a fallout of the rising bank NPAs and liquidity constraints in NBFC sector.

“However this trend started shifting towards buyouts in 2018 and 2019 with the likes of Blackstone and other large buyout funds lapping up portfolios of premium yield generating assets across commercial, retail, warehousing and industrial real estate segments,” it said.

Govt asks homebuyers to approach lenders for revival of their loans

Homebuyers of projects from Jaypee Infra and Amrapali group, among others, will not be able to avail of this fund.

The finance ministry on Thursday issued clarification on alternative investment fund (AIF), advising affected homebuyers to approach lenders for additional borrowing or revival of their loans.

“Homebuyers are advised to reach out to their respective lending institutions to seek necessary guidance for additional borrowing or revival of their existing home loans within the existing legal and regulatory framework and standard board approved policies of the lending institutions,” the ministry said in the note.

Also Read : Rs 25,000-crore realty corpus: Experts worry over implementation

It clarified that projects that are already at the high courts or at the Supreme Court will not be considered, which means homebuyers of projects from Jaypee Infra and Amrapali group, among others, will not be able to avail of this fund.

The ministry has set a cap on cost of individual unfinished projects at Rs 400 crore for being considered for financing through the AIF.

Business Standard

Realty debt could be next flash point in India's credit market: ICICI Pru

Indian shadow banks now face rising risks that weaker developers may struggle to repay those borrowings, as housing sales have failed to keep pace with debt expansion.

Business Standard : The next flash point in India’s credit markets could be real-estate debt.

That’s the view of ICICI Prudential Life Insurance Co., a major corporate bond buyer and one of India’s top life insurers. The firm avoided investing in debt of stressed companies before credit market strains spread last year.

That crisis was triggered by shock defaults by major infrastructure financier IL&FS Group, and its fallout pushed up financing costs for a range of borrowers including wealthy property tycoons struggling to roll over debt. The country hardly needs more stresses now just as credit markets regain some normalcy after policy makers took steps to inject more liquidity into the financial system.

“While most of the credit market is healthy, one needs to be cautious on NBFCs having large exposure to the real-estate sector,” said Chief Investment Officer Manish Kumar, who oversees Rs 1.1 trillion ($15.8 billion) at ICICI Prudential Life. Pressure may rise at non-bank firms, raising the need for lenders to liquidate assets or for stronger developers to buy up projects, he said.

Indian shadow banks lent heavily to the property industry in recent years, helping to fuel a construction boom.

They now face rising risks that weaker developers may struggle to repay those borrowings, as housing sales have failed to keep pace with debt expansion. Teetering economic activity also isn’t helping.

Earlier this year, troubles for mortgage lender Dewan Housing Finance Corp. were among factors that pushed up financing costs.

ALSO READ: Insurance companies have to make provisions for IL&FS defaults: Regulator

An analysis of about 11,000 home builders by research firm Liases Foras in February showed that developers on average have to repay twice as much in debt each year as the income they generate that can be used to service it. Property prices in India’s biggest cities have been flagging -- home values in Mumbai sank 11 percent last year.

That all means property debt investors need to be extra cautious, but there are still pockets of opportunity, according to ICICI Prudential. The firm has raised corporate bond holdings to 33 per cent from 31 per cent since the IL&FS crisis, mainly by increasing investments in notes issued by top-rated housing finance firms and bonds that will be serviced by the government.

Singapore home prices fall most since 2016, luxury hardest hit

The private residential property index dropped 0.6% from 2018's last quarter, preliminary data from the Urban Redevelopment Authority showed on Monday.

Singapore’s private residential prices fell the most in two-and-a-half years in the first quarter, with values of high-end homes have the biggest decline in a decade, following last year’s surprise tightening of property market curbs.

The private residential property index dropped 0.6 per cent from 2018’s last quarter, preliminary data from the Urban Redevelopment Authority showed on Monday.

It was a second consecutive fall after a 0.1 decrease in October-December.

Monday’s data showed that prices in Singapore’s prime districts fell 2.9 per cent - the biggest fall since the second quarter of 2009, according to consultancy Cushman and Wakefield. Prime districts include luxury homes in the Orchard Road shopping area and Sentosa, an island resort.

“Multiple dosage of cooling measures coupled with stronger headwinds in the macroeconomic condition has started to weigh down buying demand,” said Christine Li, Singapore head of research for the consultancy.

Li forecast overall prices to be flat this year.

To counter what they said was “excessive exuberance” in the city-state’s property market after a spike in prices last year, authorities in July slapped higher stamp duties on property purchases for individual home buyers and tightened housing loan limits.

They also unveiled stricter guidelines on the maximum number of units in new blocks of private flats and condominiums to tackle the development of so-called “shoebox units”.

Business Standard