Mumbai: Investor demand for information technology (IT) parks and IT special economic zones or SEZs appears to be strengthening.
Between January and July, private equity (PE) companies invested in 16 commercial projects in India, compared with 11 in all of 2012, according to data provided by consultancy firm KPMG India.
The demand, in particular, is for those IT parks and IT SEZs that are nearing completion since they offer safer exits for PE companies.
“PE players are more interested in projects which can deliver quickly and, hence, projects at the conceiving stage or where construction has just started is still not favoured by them,” said Neeraj Bansal, partner, advisory, at KPMG.
About 18.2 million sq. ft of new office space is expected to come up in the next few quarters across key cities, according to KPMG data, of which about 60% is going to come up in Delhi-National Capital Region (NCR) and Bangalore, followed by Pune, Chennai and Mumbai.
A PE cycle lasts for about four-five years, after which investors demand returns from PEs; but commercial projects take about six-seven years to complete, making exits difficult.
“Investors are bullish on IT parks and SEZs as the risk is low and there is high visibility in terms of rental income,” said Anuj Puri, chairman and country head at real estate consultancy, Jones Lang LaSalle India.
Blue Ridge in Pune, Phoenix
SEZ in Hyderabad and Kotak Realty’s IT park in Mumbai are some deals his firm helped close recently. “We are also brokering five-six more such deals currently,” added Puri.
Tata Realty and Infrastructure Ltd is asking Rs.800 crore for the IT park it owns in Mumbai’s suburb of Goregaon, according to a 31 July Economic Times report. Tata Realty officials couldn’t be reached for comment.
Unitech Corporate Parks (UCP), a Unitech group firm listed in London, is scouting for buyers for its 3.6 million sq. ft IT SEZ in Gurgaon near Delhi. According to a 5 August Press Trust of India (PTI) report, UCP received bids from firms such as US-based private equity firm Blackstone Plc. and Singapore’s sovereign wealth fund GIC. The maximum bid was for Rs.2,700 crore. Unitech group officials couldn’t be reached for comment.
“There is good demand for IT parks as it offers a good investment opportunity. There is good quality supply, no development risk,” said Rahul Rai, head, real estate investment business, ICICI Prudential Asset Management Co. Ltd. He added his company is interested in buying IT parks.
Traditionally, foreign investors including sovereign wealth funds and pension funds with long-term focus invest in Indian commercial projects. since January, sovereign wealth funds such as the Qatar Investment Authority (QIA), Abu Dhabi Investment Authority (ADIA) and Oman’s State General Reserve Fund have committed to investments in India.
Demand has risen since investors seek returns with relatively lower risk, said V. Hari Krishna, director, Kotak Realty Fund. The fund has received a $200 million commitment from ADIA.
“A lot of foreign investments are currently chasing IT parks in India, though not across the country. The primary focus of these funds is the key cities of Mumbai, Pune, Bangalore, Chennai, Hyderabad and Delhi-NCR,” said Puri of Jones Lang LaSalle.
The lack of exit options and the high risk in residential projects has led to PEs shifting focus towards high quality commercial assets such as IT parks and SEZs.
According to KPMG’s Bansal, “Adjusting to the reality of low returns from the Indian real estate sector, PE players are now balancing their portfolio to generate suitable returns for their investors.”
According to experts, the valuations are still quite attractive as the yields on these assets are still much better in India than in developed countries, and there is the added benefit of capital appreciation.
However, with the cost of borrowing increasing in the last two months after the Reserve Bank of India (RBI) started liquidity tightening, developers are moderating their valuation expectations.
Source : livemint.com