Investment in Asian real estate sector to benefit India

India may get benefited from the increased fund allocation to Asian real estate sector by global investors. Even as total amount raised by private equity real estate funds between January and November 2008 fell by a third to $57 billion from a year ago, the allocation towards Asian markets increased to 28% from 19%. As a result, the funds available for investment in Asia has increased marginally from $15.9 billion last year to $16.2 billion.

But dealmakers say this need not necessarily mean immediate deployment of such funds in India as the property prices have still not corrected enough and demand remains weak.

As per the data collected by New York-based Private Equity Real Estate magazine, Asia and rest of the world (28%) edged ahead of Americas (25%), Global (24%) and Europe (23%) in terms of geographical allocation by investors for all new real estate funds closed in 2008.

India and China are top two contenders for Asia-focused funds, says Cushman & Wakefield director (capital markets) Sandeep Singh. “Funds with short-term horizon may not come to India as downside risks remain. Property prices have fallen, but not enough. Besides, demand is still weak,” he said.

After having seen a five year bull run ending in 2007, the Indian real estate sector is now faced with a tough market with sales flagging and debt unavailable.

Several developers have been seeking private equity funds, but deals have been few and far between over the last 6 months. “There are a number of foreign and domestic funds sitting on cash, but no one is willing to invest immediately. All funds have slipped into wait and watch mode as global economic situation worsens,” says DTZ investment advisory director Ambar Maheshwari.

PE players are seeking higher returns and are willing to wait for valuations to come down. Some of them are even exploring distressed assets.

Lately, fund raising has become a big challenge for private equity players as limited partners or actual investors seek more time following the global economic turmoil which has eroded their wealth and made them cautious of investing. This has delayed the final closure of some major funds, including twelve billion dollar Morgan Stanley Real Estate.

Much of the funds this year were closed by August, after which the global economic scenario deteriorated sharply. Only two funds totaling $533 million were closed in September, while just one $2.7 billion Merrill Lynch Asia fund was closed in October.