Domestic private equity firms scouting for investment opportunities are finding the cash-strapped real estate sector a good bet. Around half-a-dozen PE firms are in various stages of raising money to be deployed in real estate projects. With money becoming costlier for developers, these investors are expecting to generate 20-25% returns on their portfolios over the next few years.
Analysts tracking deals in the real estate sector expect domestic private equity funds to raise about Rs 8,000 crore over the next few months for such investments. Almost all funds having a real estate portfolio are looking to raise funds in tranches.
ICICI Ventures , ASK Investment Holdings, Anand Rathi-Knight Frank, Motilal Oswal Private Equity and Saffron Asset Advisors are among the firms that are at different stages of raising capital for the cash-deficient sector.
"Real estate is an income-generating asset class," said Sunil Rohokale, executive director, ASK Investment Holdings, which is launching a Rs 1,000-crore residential property fund.
"Realistic demand for housing across Indian cities supported by rising income make residential real estate a good sector to invest and obtain superior risk-adjusted returns. There is tremendous investment opportunity in shorter gestation, city-centric, self-liquidating residential real estate projects with prudent developers," said Mr Rohokale.
ASK Real Estate Special Opportunities Fund will only invest in shorter gestation (construction time 3-4 years), city and suburban city-centric residential projects located in top-seven cities. The fund will not invest more than 30% in any non-metro city; only up to 25% will be invested in one project and not more than 30% will be invested in a developer group, Mr Rohokale added.
ICICI Venture and Anand Rathi-Knight Frank are planning to raise Rs 1,000 crore and Rs 250, respectively, from domestic investors. After the unfolding of bribes-for-loan scam, in which several real estate companies were named, developers are finding it difficult to raise capital at affordable rates. The informal clamp down on banks funding real estate sector, RBI raising lending rates and lukewarm sales, as a result of high realty prices, is hurting real estate companies.
These factors have improved investment opportunities, as developers are now open to partnering with real estate funds on better terms. For instance, they are willing to share a larger portion of profits, about 22-28%, with private equity investors.
According to analysts, real estate investments bear less risk than what they did in previous times. In sharp contrast to 2007 and early 2008, real estate companies are not investing money to acquire mass land bank or other fixed assets. After the turmoil in end-2008, real estate companies have realised the need for a strong balance sheet. Many overleveraged real estate firms have used their cash in books to deleverage themselves.
"We are positive on the sector. We expect demand for residential properties to continue over the next few years," said Shobhit Agarwal, president-capital markets & global real estate, Jones Lang LaSalle Meghraj.
Analysts tracking deals in the real estate sector expect domestic private equity funds to raise about Rs 8,000 crore over the next few months for such investments. Almost all funds having a real estate portfolio are looking to raise funds in tranches.
ICICI Ventures , ASK Investment Holdings, Anand Rathi-Knight Frank, Motilal Oswal Private Equity and Saffron Asset Advisors are among the firms that are at different stages of raising capital for the cash-deficient sector.
"Real estate is an income-generating asset class," said Sunil Rohokale, executive director, ASK Investment Holdings, which is launching a Rs 1,000-crore residential property fund.
"Realistic demand for housing across Indian cities supported by rising income make residential real estate a good sector to invest and obtain superior risk-adjusted returns. There is tremendous investment opportunity in shorter gestation, city-centric, self-liquidating residential real estate projects with prudent developers," said Mr Rohokale.
ASK Real Estate Special Opportunities Fund will only invest in shorter gestation (construction time 3-4 years), city and suburban city-centric residential projects located in top-seven cities. The fund will not invest more than 30% in any non-metro city; only up to 25% will be invested in one project and not more than 30% will be invested in a developer group, Mr Rohokale added.
ICICI Venture and Anand Rathi-Knight Frank are planning to raise Rs 1,000 crore and Rs 250, respectively, from domestic investors. After the unfolding of bribes-for-loan scam, in which several real estate companies were named, developers are finding it difficult to raise capital at affordable rates. The informal clamp down on banks funding real estate sector, RBI raising lending rates and lukewarm sales, as a result of high realty prices, is hurting real estate companies.
These factors have improved investment opportunities, as developers are now open to partnering with real estate funds on better terms. For instance, they are willing to share a larger portion of profits, about 22-28%, with private equity investors.
According to analysts, real estate investments bear less risk than what they did in previous times. In sharp contrast to 2007 and early 2008, real estate companies are not investing money to acquire mass land bank or other fixed assets. After the turmoil in end-2008, real estate companies have realised the need for a strong balance sheet. Many overleveraged real estate firms have used their cash in books to deleverage themselves.
"We are positive on the sector. We expect demand for residential properties to continue over the next few years," said Shobhit Agarwal, president-capital markets & global real estate, Jones Lang LaSalle Meghraj.
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
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