In my conversations with foreign institutional investors, they often raise the issue of how irregularities, inefficiencies and lack of exit options in the Indian real estate (RE) market affected returns on money invested during 2007-08. While the issue is undeniable, I believe it is a thing of the past and that the situation has improved. The sector suffered due to the lack of a regulator, but with the implementation of the Real Estate Regulator Act (RERA), transparency and corporate governance are expected to improve drastically. Further, while relaxation of FDI policies has helped increase the scope of investment for foreign investors, clearing the way for REITs has provided better entry and exit options. So looking through the same glasses used in the pre-global financial crisis (GFC) period might not provide the correct picture.

While the Indian RE scenario has improved, the PE investor community has also learnt from its mistakes. The investment strategies have clearly shifted from being largely opportunistic to long-term partnership driven. Many PE investors are now eyeing the creation of longer-term platforms or JVs with other PE investors or developers. The intensity of developer due diligence has increased considerably, creating a base for stronger relationships. We expect a sizeable increase in the number of such partnerships, which will result in the launch of joint REITs. Indian RE is in the developing stage and requires money that can stay in the project for a longer period without unreasonable return expectations. With the entry of sovereign & pension funds and PE investors with deep pockets, we expect this issue to be largely solved.

Another striking difference between the pre-GFC period and now is the participation and investment strategies of PE investors. Since 2014, the number of PE investors investing in India has declined by more than one-third compared with 2007-08 (pre-GFC period). The ongoing phase has witnessed investments by two categories of investors: 1) Those who survived through the first phase of 2007-08 and 2) Those who could not/did not participate. We expect these investors to continue, along with a new set of investors (opportunistic and patient money) looking to take part in the revived Indian economy. Unlike 2007-08, when investment reached a sizeable pool of developers (120+) spread across various cities (31), investors have become selective regarding developers (with a strong track record) and geographies (top seven cities). With the application of RERA, we expect a new set of developers and a few more cities such as Ahmedabad, Jaipur and Chandigarh to meet the investment criteria.

In a nutshell, the Indian RE market has matured; while developers have improved their style of operations and focus on development, investors have become more realistic in their expectations. The momentum has picked up under Hon. Prime Minister Modi’s leadership and reforms and there is a high possibility that we will regain the confidence in the next seven years that we lost in the past seven years.

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