Vishal Ratanghayra, Founder & CEO, Platinum Corp.

Vishal the Founder and CEO of Platinum Corp is a first-generation real estate developer who has been instrumental in bringing a refreshingly new outlook towards the Real Estate market in Mumbai. With a Bachelor’s Degree in Architecture from Kamla Raheja Vidyanidhi Institute for Architecture and Environmental Studies, Mumbai he pioneered the concept of providing compact multi-functional spaces through optimal space design and thereby redefined modern urban living. Over the last 15 years, he has been active, both, as an entrepreneur operating as a Developer for Mumbai based projects and as an advisor on techno-commercial aspects to some large-scale projects and investments under the FDI route across India.

 

The first three months of 2021 have been exceptional for Indian real estate. both, buyer demand and foreign investments have soared. While the reasons for the former are obvious, here’s a look at why the global investor is showing renewed interest in Indian realty and, how Indian companies could benefit from it.

Offshore interest and investment in Indian real estate is soaring, despite a worldwide pandemic.

An Anarock FLUX report recorded a 19% growth in private equity investments in real estate in FY21. This is also the highest-ever influx of foreign funds in the last five years. 93% of these investments, a total of US$5.8billion has come from foreign investors.

But what explains this surge in investor interest in the middle of a pandemic?

The reasons are simple – Indian real estate’s hunger for capital, an uptick in consumer demand, new sector-wide regulations that mandate transparency and the promise of volume growth from areas like affordable housing; plus, the emergence of alternative assets like Senior Housing, Community development, CoWorking spaces etc.

Let’s look at these in detail.

1. Indian Real Estate’s Capital Crisis

To say the last few years have been tough for the real estate sector is stating the obvious. The sector was still reeling from the impact of demonetization when it was hit by a triple whammy.

First, with the Real Estate Regulator coming in, compliance & regulatory requirements increased. Sales now happen later in the project lifecycle, thus necessitating higher investment upfront in project development.

Almost simultaneously came the NBFC liquidity crisis which began with a AAA bond default in 2018. Overnight, the NBFCs shut the liquidity tap to the sector and reduced exposure.

Thirdly, a pandemic-induced lockdown saw large-scale migration of labourers back to their hometowns and stoppage of work.

Financially prudent developers with well-managed balance sheets, managed to raise funds and ensure continuous development. For instance, at Platinum Corp, we raised funds, ensured construction continued through the pandemic and completed and handed over apartments in two projects to over two hundred and fifty families.

However, not all developers could access funds and this has led to a new wave of consolidation where smaller developers are joining hands with larger players.

2. New Regulatory Landscape

Even as real estate was grappling with a liquidity crunch, new regulations that mandated transparency were attracting the attention of the foreign investor. The Real Estate Regulatory Authority or RERA, the new GST framework, other laws like the Benami Property Act, the Model Tenancy Act, all made investors sit up and take note.

3. The Return of the Homebuyer

Meanwhile, on ground, demand for homes, especially, ready property increased as buyers grappled with increased space requirements from a pandemic-induced lockdown. Historically low home loan interest rates and Union and State government incentives were the cherry on the cake.

Property consultancy Anarock’s data shows around 82,860 homes were sold in the first six months of 2021 alone. This uptick in sales is spurring hopes of the beginning of a new business cycle and is attracting investors.

So, where is this money going?

According to the Anarock FLUX report, about 10% of the $6,272 million PE investments in Indian Real Estate has gone into funding residential projects. Bulk of the funds were invested in portfolio deals across projects and across cities. The Mumbai Metropolitan Region got the lion’s share of investments, followed by Hyderabad, Delhi-NCR, Bengaluru, Pune and Chennai.

Investors seemed to favour both equity and structured debt investments. PE funds are also exploring newer investment avenues like stressed loan books (from real estate exposure) and last mile project financing.

But, it’s not just about the money. It’s also about what an institutional investor brings to the table.

An institutional investor has vested interest in the growth of the investee company. To this end, they share data-driven insights, help in problem-solving based on their experience in different markets, and mentor the investee company leadership.

They also help bring more opportunities to the table and enable the investee to tap into newer sources of capital. But the biggest change that increased PE investment could bring to Indian real estate, is probably in the area of compliance – one that has been the biggest stumbling block for the sector.

So, what’s next?

As we speak, Savill’s India reports that investors are readying an arsenal of funds for deployment in Asia and India. Additionally, investors from geographies like Korea and Japan are reportedly exploring India as an option.

But to benefit from this increased investor appetite, Indian real estate companies have to shape up.

Companies also have to begin thinking long-term – beyond the project at hand – to attract long-term capital. Developers have to invest time and effort to build locally-focused organisations with globally accepted regulatory, compliance & disclosure practices.

It’s Indian real estate’s moment in the spotlight. Let’s ensure we build on it.

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