Private equity investment and real estate development: Evidence from residential projects in India

Abstract

Purpose

The purpose of this paper is to understand the trends and contribution of private equity (PE) investors in real estate development in India because the real estate sector in India had witnessed significant investments from PE firms in recent years.

Design/methodology/approach

The study focused on residential segment of real estate development, as it is the largest among all the segments. Two types of analyses have been done in this paper: first was to compare residential projects with PE investment with those that did not have any PE investment. The results were based on an analysis of 453 residential projects. The second was an analysis of only those projects that had PE investment. This paper studied if there were differences in investment patterns between domestic and foreign PE investors, and dedicated and diversified PE investors.

Findings

Projects with PE investment were larger, as compared to projects that did not have any PE investment. The results of this paper also showed that PE firms preferred to invest with developers who had significant experience in undertaking larger-sized projects. PE investments significantly happened in projects that were located in metro cities. While PE firms as a whole preferred to invest in project mode, domestic investors were more inclined to invest in a project structure as compared to foreign PE firms. Though foreign PE firms invested more amounts per deal on average, there was a negative relationship between foreign PE firms and the extent of their shareholding in the investment.

Practical implications

Encouraging PE investment in real estate projects would contribute toward to increasing the transparency in the sector. Strengthening the domestic PE industry would increase investment flow for real estate projects. PE investors who are able to add value to their investments are able to obtain higher shareholding.

Originality/value

Empirical research on Indian real estate industry is scarce because of the lack of transparency and availability of reliable data. This is one of the initial studies on the Indian real estate sector based on a robust dataset.

Citation

Rajan Annamalai, T., Bansal, B. and Gemson, J. (2014), "Private equity investment and real estate development: Evidence from residential projects in India", Journal of Financial Management of Property and Construction, Vol. 19 No. 3, pp. 202-225. https://doi.org/10.1108/JFMPC-02-2014-0001