Sustained liquidity crunch along with caution among the Non-Banking Finance Companies (NBFCs) about their exposure to real estate has led to tightening of purse strings towards the cash-strapped sector. However, private equity firms have come as a white knight for the sector providing it with much needed funding and emerging as the largest source of money for the developers.
With the recent liquidity crunch that affected almost all NBFCs, the companies were holding back their purses when it comes to investing in the real estate space. While some NBFCs have started investing again, they remain picky and extremely cautious about their investments.
This opened a window of opportunity for private equity players to build a pipeline of real estate project financing. Between October and March, PE firms have invested $1.8 billion across 20 deals, showed data from Venture Intelligence.
“What’s been noticeable in recent months is the rising investments by foreign private equity players like Morgan Stanley and Capital Group as well as domestic players like HDFC Venture, Kotak Realty, and Motilal Oswal,” said Arun Natarajan, founder of Venture Intelligence.
This doesn’t mean that money is flowing freely now. PE firms are also being cautious while putting their money given the rise in risk perception and paucity of capital. Meanwhile, return expectations have shot through the roof too.
“There’s a good pipeline of deals enabling us to be very selective. We are deploying capital with strategy of partnering with established developers with execution track record at the land acquisition level. We are staying away from refinance and last mile funding,” said Sharad Mittal, CEO of Motilal Oswal Real Estate (MORE), the real estate private equity arm of Motilal Oswal Financial Services told the Economic Times.