Private equities book healthy profits in Bangalore realty market

Here's why Bangalore is the top draw for institutional investors in India's real estate market. The city continues to cheer investors with over 20% return on their investments even in these volatile times.

A PE research note, shared by international property consultants Vestian Global, showed that Bangalore accounted for five out of a total of nine investor exits in the April to September period, giving them an average internal rate of return (IRR) of 23.5%.

Interestingly, all exits pertained to residential developments, indicating a stable end-user driven market in the southern metro.

ICICI Prudential PMS clocked the highest IRR of 27%, in the July to September quarter, from its investments in two projects developed by southern real estate major Shriram Properties. In the same period the fund had exited from its investment in a residential township being developed by Kumar Urban Developers, in Pune, with an IRR of 20%.

Pankaj Kapoor, CEO of real estate research firm Liases Foras said that post 2011 Bangalore has been the most productive metro in the country in respect to sales and supply of residential units.

"As of today, the Mumbai Metropolitan Region and NCR have residential supply inventory that will only get exhausted in the next 48 months. Chennai has a supply inventory for the next 30 months, where as Bangalore has an inventory that is expected to be lapped up within the next 15 months," said Kapoor.

In January this year, global investor Blackstone got its maiden profit from the Indian real estate market riding on robust luxury apartment sales in Bangalore. Blackstone exited a join venture with southern developer Embassy Property Developments with a 30% absolute profit, and annualized return on investment topping 42%, in just 18 months.

While PE players have traditionally looked for IRR's in excess of 25% in the real estate market, Shrinivas Rao, CEO-Asia Pacific, Vestian, believes that in the current economic climate even a minimum IRR of 20% is good enough for them.