Tag Archives: Amit BHagat ASK

HNI money into real estate PE ensures risk mitigation-III

Posted on by Track2Realty

By: Amit Bhagat, MD & CEO, ASK Property Investment Advisors

Amit BHagat ASK, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyTrack2Realty Exclusive: Objective analysis of all risk factors helps in proper selection of developer which mitigates completion risk and developer risk. Most of the investments involve creation of Special Purpose Vehicles (SPV) and provision of controls to REPE funds at SPV level by virtue of their financial investment.

These experts also manage the risk of diversion of money which mitigates completion risk. Disbursal of funds by REPE also depends on achievement of project milestones.

Returns in real estate can be optimised if an investment is made at project development stage. REPE being equity partners share the profit margins of the developer unlike the direct investor who is solely dependent on the end product price appreciation.

To illustrate: Rs 5000/ sqft can be end product pricing for retail customer but developer and private equity fund may have invested approx 1/3 rd of the price as land /FSI cost, the other 1/3rd which is construction cost is financed by retail customer and the balance 1/3rd is the profit margin of the developer and REPE.

Hence, the appreciation is not the target by REPE. Direct investment necessitates appreciation as the only means of making decent returns at the cost of not managing any risk.

The track record of REPE funds to invest in quality projects and deliver returns is the final criteria to invest in such funds.

Selection of Fund Manager should be done with proper due diligence after careful analysis of team credentials, experience, track record of investment and returns, strategy, location and partner selection criterion etc.

REPE is the best vehicle to provide experienced and organised vehicle for investments in Real estate sector.

HNI money into real estate PE ensures risk mitigation-II

Posted on by Track2Realty

By: Amit Bhagat, MD & CEO, ASK Property Investment Advisors

Amit BHagat ASK, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyTrack2Realty Exclusive: Direct investment in case of leveraged returns has to take into account carrying cost (interest cost) and in case of non leveraged returns should consider opportunity cost.

Opportunity cost is the cost of opportunity lost in case the investment is not yielding desired results i.e. in both cases interest and opportunity is a double edged sword.

The above shortcomings are effectively addressed by Domestic REPE (Domestic Real Estate Private Equity) funds which are managed by team of experts with defined investment strategy. REPE funds are pooled vehicles registered with SEBI. Duration of these funds is typically 5-7 years.

REPE comprises of professionals with experience in real estate, construction and asset management experience. These funds have a defined investment strategy which defines investment criteria, financial norms and location strategy. This mitigates concentration risk of area, developer and segments.

In case of residential real estate, investment strategy involves selection of micro-markets which are established/upcoming growth corridors in a given city/region. Micro-markets are selected based on extensive research of factors like employment growth, infrastructure developments like roads, railways, metro railway, airports facilities, healthcare and educational facilities.

The Asset Management Professionals of REPE funds are in a better position to select right development partner based on objective selection criteria. They have hardcore construction experience to monitor day-to-day progress of projects invested; this ensures timely completion of projects with requisite standards.

Success of REPE funds is based on their ability to invest in quality projects with timely completion. This involves proper assessment of developer risk and completion risk. Developer risk is more on account of over leveraging and over commitment. Completion risk is on account of quality and committed time duration.

Assessment is based on criterion like developer profile, construction quality, execution record, financial position, legal and regulatory history. The projects are also examined with respect to regulatory approvals received and proposed plan. Financial viability of project ensures that proper estimates of cost and pricing is undertaken.

…to be continued

HNI money into real estate PE ensures risk mitigation-I

Posted on by Track2Realty

By: Amit Bhagat, MD & CEO, ASK Property Investment Advisors

Amit BHagat  ASK, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyTrack2Realty Exclusive: In the current scenario, investment in Real estate sector has been a challenging task due to complexity of the real estate markets in various cities. The complexity has evolved as a result of local planning regulations, social and demographic features, economic profile and legacy issues.

This is further compounded by the macro-economic factors like interest rates, credit regulations, economic/income growth and resulting affordability as well as tax considerations.

However, the most important task of selecting the right segment, project and right developer pose a challenge given the localised nature of the industry. Real Estate PE funds are most competent to address the above complexities due to their experience in real estate investment, construction/asset management and risk management.

Conventionally investors have been addressing these issues partially. One is most likely to invest in a city where one resides. This leads to concentration of all investments in one market which is not a prudent investment practise. For instance this risk is being more appreciated by investors in Hyderabad due to current socio-political crisis prevailing in the state.

The investor may not be in a position to identify growth corridors that could offer superior risk adjusted returns. A growth corridor can be described as emerging location in a city with better infrastructure and job creation opportunities.

In addition to concentration risk, direct investments brings with itself higher percentage of transaction cost through stamp duty/registration. These transaction costs necessitate a higher appreciation before any return is earned.

For instance, an investment of Rs 5000 per sq ft should become Rs 10,500 per sq ft to absorb stamp duty/registration cost of Rs 500 per sq ft and balance Rs 5000 per sq ft will offer 26% IRR (Internal rate of return) over 3 year period provided entire payment has been made upfront.

…..to be continued