Private Equity Focusing on Real Estate in Pune, India


May 2, 2014

Pune is one of India’s biggest cities, but it is not one that would immediately spring to mind for many investors if they were asked where the big opportunities were in the country. However, the Times of India has this week reported that private equity (PE) investors looking at the city are being attracted to the real estate sector there.


Why is Pune so Attractive?
Like many Indian cities, Pune is undergoing a fast transformation and is turning into more of a modern city with each development. The factors increasing the attractiveness of Pune as a private equity destination, specifically with real estate in mind, include:


• Pune is fast becoming a popular city among professionals, with many moving there as their employers increase their presence in the city.
• The local economy is relatively fast growing and isn’t suffering from the effects of a national economic downturn in the same way as several of India’s other cities are.


Where the Pune Real Estate Opportunities Lie
The main factor you notice from the influencing factors is that Pune is facing an increased demand for both residential and commercial space. Often, these markets can be in reverse trends, but in Pune there is a huge opportunity given they are both increasing in terms of demand, which in turn should drive up the price. Real estate PE investors headed into Pune will be banking on this growth continuing for the next 5 – 10 years.


While India has not delivered the level of returns expected in many areas across the PE marketplace in recent years, this has been due more to investors paying a premium to secure investments in the country rather than anything that has gone wrong in India itself.


A report by Cushman & Wakefield stated, “With growing housing demand, investments in the right project have the potential to yield healthy returns,” while announcing that year-on-year real estate investments in Pune were up 300% in 2013 compared to 2012.


Perhaps more significantly, the report also found that 20% of all Indian real estate investment throughout 2013 went into Pune. While the increase in residential investments would have been expected, the commercial areas that have benefitted are more surprising.


Investors are moving away from traditional office based real estate and property and are instead targeting retail, hospitality, and leisure outlets as demand for these increases in the developing Indian economy. Sanjay Dutt, of Cushman & Wakefield, told the Times of India, “The residential asset class continues to provide tremendous potential for growth in the coming years.


With housing requirements growing across cities and funds investing in the asset class, primarily in the form of non-convertible debentures, providing fixed returns, investments in the right project have the potential to yield healthy returns.”


Anuj Puri of JLL India added that population growth and the swelling of the Indian middle class, in a manner not dissimilar to that being seen across sub-Saharan Africa, was likely to make the country a hot proposition for real estate and general investors in the coming years, despite some of the world’s biggest PE firms pulling away from emerging markets and the BRIC nations in particular.

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