Goldman Sachs said it is set to acquire a minority stake in Piramal Realty for $150 million (Rs900 crore) to help fund the Indian developer’s expansion in Mumbai.
This latest investment amplifies the Wall Street bank’s bet on India. Since 2006, Goldman has deployed more than $2.5 billion in India across different sectors.
“The government's focus on simplifying regulation and boosting economic growth will kick start investment and consumption,” said Ankur Sahu, co-head of private equity at Goldman in Asia in a statement on Monday. The government initiatives and resulting economic activity will increase demand for housing and office space, he added.
Goldman’s transaction comes at a time when the country's investment climate is improving after high interest rates and the political and policy uncertainties in an election year made for sluggish domestic property purchases.
Buyers postponed purchases, which drove up inventory levels. Debt reduction stalled in 2014 due to weak sales and slower cash collections on properties, as developers introduced easy payment schemes to stoke demand.
“Last year was pretty challenging,” Hasira De Silva, an analyst at credit rating agency Fitch told FinanceAsia, “The government’s structural changes will overall be positive for India’s property developers but will take time to have an effect.”
He noted that property developers in India have stretched balance sheets relative to their regional peers and need to tap funding sources other than bank debt.
Part of the reason for Indian developers’ comparatively high leverage is the time needed for high-rise development. In India the average tower takes five to six years to build, while in Indonesia it takes two to three years; tower construction in China is even faster.
India’s property development sector is benefiting from reductions in housing loan interest rates by several domestic banks, following interest rate reductions by the Reserve Bank of India aimed at accelerating credit growth.
Mumbai expansion plans
Goldman’s funds and experience will be used by Piramal Realty, the real estate development arm of the Piramal Group, to expand the company’s real estate portfolio and acquire prime properties in and around Mumbai.
Founded in 2011, Piramal Realty has over 10 million square feet of commercial and residential projects under development in Mumbai.
In the next few months, Piramal Realty will launch Piramal Vaikunth in Thane, a mixed-use complex featuring high-rises, townhouses, a spiritual learning centre, retail and an arts complex, across 34 acres.
Goldman has helped develop buildings such as 15 Central Park West in New York and 16 Colleyers Quay in Singapore.
In tandem with this investment, Piramal Realty, said it planned to launch a buy back guarantee. The company will offer to buy back any residential unit from a customer at a 5% discount to the market value until possession.
The Carlyle Group also said on Monday that it had made an acquisition in India. The US private equity firm said it had acquired a significant minority stake in Faridabad, India-based Dee Piping Systems, but did not disclose the investment amount.