Super built-up

Goldman Sachs and Warburg Pincus are most certainly some of the best names in the world of finance and when you see them make a bet, you would hesitate to question their logic. That is why the Ajay Piramal-owned Piramal Realty deal, as part of which the ace private equity funds have invested #2,700 crore in the company, appears to be a really curious case.

As it turns out, the facts on the ground do not seem to quite corroborate the bullish stance taken by the private equity investors. Real estate prices across India are pulling back, with only the degree varying. Transaction volumes have fallen sharply, new project launches are few and far between and inventory is piling up, prompting investors to hold back further purchases, knowing that there is a huge demand-supply mismatch. Already, the housing affordability index shows that houses are unaffordable on average, getting closer to a five-year high, even as top builders in the country and the central bank governor argue over whether it is interest rates or property prices that are making houses unaffordable.

Given the long cycles in real estate, if the correction is just about setting in, prices will take at least a couple of more years to bottom out and, of course, there could be more price disruption. So, how do the deal’s economics really work? Is the transaction predicated on ambitious assumptions about the future or on some insights that are invisible to the common investor today? Read that story by Krishna Gopalan on page 48.

In other stories, we have a feature on page 28 that profiles the rise of app aggregators looking to make domestic chores a breeze for urban householders. The issue also showcases the first-ever exclusive survey by Outlook Business and the Great Places to Work Institute, covering the not-for-profit humanitarian sector. Interestingly, the survey reveals that 77% of the respondents believe that their organisation is a great place to work at. That story begins on page 64. 

In the markets section, we take a look at why spin-offs have not really created value for shareholders.