MUMBAI/BANGALORE: The depreciating rupee may have helped improve property sales to NRI buyers, but it isn't helping the saviour of real estate developers — private equity firms — which are not only stuck with their earlier investments, but can't raise fresh funds either.
Indian currency's record depreciation against the greenback and weak property market have restricted realty private equity offshore funds' fresh fund raising efforts as well as trapped their earlier investments since FDI gates were opened in 2005. The rupee has depreciated nearly 27 per cent since April 1 to touch a record low of Rs 68.63 against the dollar on August 28. Over the past two years, when most of these exits were being planned, the currency has slipped 46 per cent to touch this level.
It has almost wiped out foreign private equity funds' meager returns from real estate, and any exit now will lead to at least 25-30 per cent loss in dollar terms. "The environment for raising fund from overseas investors is not very conducive. Offshore funds that have invested during the last few years when the US dollar was quoting at Rs 42-52 will find it challenging to offer good returns now because of the fall of the rupee and weak underlying market," says S Srinivasan, CEO at Kotak Realty Fund.
Investments made in Indian real estate sector are cumulatively estimated to be around $15 billion since foreign direct investments were allowed in the sector. Around 20 per cent of this was expected to get an exit in the past two years, but seems a distinct possibility now. Private equity firms with offshore funds are in a state of flux not only because of their stuck investments and delay in project completions, but are also concerned about not being able to raise fresh funds in the current scenario.
"Most capital in Indian real estate was invested at the exchange rate of around Rs 40 to a dollar with the expectation of 25 per cent returns. The current phase of currency depreciation would impact the real estate sector adversely as foreign investors would wait for the full cycle to play out and exchange rate to settle down before taking any fresh investment calls," says Rajeev Bairathi, executive director, capital transaction group and north India, Knight Frank India.
Most real estate funds that have invested at dollar rate of around Rs 40-45 are likely to get an exit after these seven years at more than Rs 60, which is a loss of around 30 per cent in the currency itself. Moreover, most assets, given the weak property market, have not seen any major appreciation.
source:- http://economictimes.indiatimes.com/markets/real-estate/realty-trends/rupee-free-fall-wipes-out-meager-returns-on-real-estate-makes-pe-exit-painful/articleshow/22501425.cms
Indian currency's record depreciation against the greenback and weak property market have restricted realty private equity offshore funds' fresh fund raising efforts as well as trapped their earlier investments since FDI gates were opened in 2005. The rupee has depreciated nearly 27 per cent since April 1 to touch a record low of Rs 68.63 against the dollar on August 28. Over the past two years, when most of these exits were being planned, the currency has slipped 46 per cent to touch this level.
It has almost wiped out foreign private equity funds' meager returns from real estate, and any exit now will lead to at least 25-30 per cent loss in dollar terms. "The environment for raising fund from overseas investors is not very conducive. Offshore funds that have invested during the last few years when the US dollar was quoting at Rs 42-52 will find it challenging to offer good returns now because of the fall of the rupee and weak underlying market," says S Srinivasan, CEO at Kotak Realty Fund.
Investments made in Indian real estate sector are cumulatively estimated to be around $15 billion since foreign direct investments were allowed in the sector. Around 20 per cent of this was expected to get an exit in the past two years, but seems a distinct possibility now. Private equity firms with offshore funds are in a state of flux not only because of their stuck investments and delay in project completions, but are also concerned about not being able to raise fresh funds in the current scenario.
"Most capital in Indian real estate was invested at the exchange rate of around Rs 40 to a dollar with the expectation of 25 per cent returns. The current phase of currency depreciation would impact the real estate sector adversely as foreign investors would wait for the full cycle to play out and exchange rate to settle down before taking any fresh investment calls," says Rajeev Bairathi, executive director, capital transaction group and north India, Knight Frank India.
Most real estate funds that have invested at dollar rate of around Rs 40-45 are likely to get an exit after these seven years at more than Rs 60, which is a loss of around 30 per cent in the currency itself. Moreover, most assets, given the weak property market, have not seen any major appreciation.
source:- http://economictimes.indiatimes.com/markets/real-estate/realty-trends/rupee-free-fall-wipes-out-meager-returns-on-real-estate-makes-pe-exit-painful/articleshow/22501425.cms
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