Tag Archives: Investment in Indian real estate

Measures to make REIT a game changer

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Opinion: What needs to be done to ensure that Real Estate Investment Trusts (REITs) get to be the game changer? Niranjan Hiranandani, CMD, Hiranandani Group, shares his opinion.

Niranjan Hiranandani, Mumbai real estate, Powai, Hiranandani Group, India real estate news, Indian realty news, India property market, Track2Media Research, Track2RealtyIn India, we have seen ‘pious thought’ and ‘positive thinking’ not always being supplemented by positive action on part of the ‘powers that be’; be they regulatory authorities or the taxation authorities. Challenges which need to be addressed include different rates at which stamp duties are levied, for purchase and sale of assets across various states in India. Potential exists; making it a reality is the challenge.

How relevant is the introduction of REITs when it comes to providing a new opportunity to get funds for the Indian real estate industry? Consider first, that India’s real estate has struggled to reduce debt, given that interest rates are among the highest in Asia. And, also consider that REITs will provide investors an opportunity to buy into India’s real estate market – these two aspects are just the basics.

Now, let us talk numbers: assets that may qualify to be included in REITs may reach $ 20 billion by 2020, according to recent media report which quoted a global property consultant as also saying that in the first three to five years, as much as $ 12 billion could be raised. This does sound good. Doesn’t it?

Let us now focus on what makes REITs relevant to present market scenario: REITs started off in the U.S.A. in the 1960s. These are publicly traded, and are an option to pool investor money and buy real estate, including shopping malls, office buildings and rental housing. So, when we talk about India’s real estate and REITs, experts say it has the potential to grow so as to rank among the top five markets in Asia by market capitalization.

Logically speaking, in theory, India is ready for REITs. The moot question that we need to address is: what measures can make REITs a game changer in Indian real estate? Let us begin with the first serious attempt to get REITs into India.

The Securities & Exchange Board of India (SEBI) released the first draft of guidelines for REITs in 2008. The reason it never got final approval was because of a lack of clarity on taxes as also the global financial crisis which hurt the investment climate.

This brings us to the second question we must seek answers to: how can India avoid the ‘grey zones’ of policies? I think the answers are self-evident: India needs to ensure that the delay – from 2008 to 2014 – does not get repeated; and we try to make up for the lost time.

What to my mind will make this happen is the presence of ‘political will’ to create the right environment for REITs to become a successful part of Indian real estate. The new Indian Government has given REITs due importance; it is reflected not just in statements made, but also in form of positive action. Consider that SEBI has released a new set of guidelines this October, which outlines the eligibility criteria for setting up REITs. This is surely a step in the right direction.

If India can focus on the positives when it comes to REITs, and ensure that the implementation is ‘smooth’ – no potholed roads and no speed-breakers – it will definitely be a ‘smooth drive’.

My concern is whether the Indian regulatory set-up and taxation framework will ensure a smooth path for REITs in India. I have witnessed the collective enthusiasm of real estate players, regulators and investment advisors when it comes to bringing REITs to India. I hope this will also translate into actual implementation and speedy implementation. REITs represent an inherent potential that can revolutionize India’s real estate development and overall liquidity framework – that is the ‘easy to understand’ part; ensuring that it works to potential. That is the challenge.

The potential that REITs have will benefit Indian real estate to the tune of USD 10-15 billion over the long term. Whoever I have met in the international investment market, all are ‘very excited’ to see how the ‘potential’ can be converted into a ‘reality’. To my mind, this is the second challenge.

If directing flow of large-scale real estate investment from global and local markets to India is the goal, and doing it in the shortest possible time is inherent in that goal; REITs is the answer. This is an answer where some key issues need to be ‘handled right’, including the process of transferring an asset to a REIT or issues relating to levy of stamp duty at the State Government level. These are aspects where we hope we have the Government’s attention.

In theory, it looks easy to showcase the potential of REITs; in reality there are key areas that need fine-tuning before this new capital market instrument can ‘take off’. I will not repeat aspects which experts have been speaking about since the past few months. The top one, to my mind, includes tax breaks, as per the present set-up not being perceived by market players to be ‘enough’.

Then, there is the aspect of RoI. Experts have estimated that as per the present set-up, Indian REITs would have post-tax yields of 7 per cent to 8 per cent, which is lower than the Indian Government Bonds, which offer yields of between 8 per cent and 9 per cent. This is another challenge that needs to be faced.

Still on the aspect of RoI, there is the concern from experts by what percentage will rents for assets included in the REIT need to appreciate – most seem to suggest the annual appreciation will need to range from 4 per cent to 5 per cent. This again, will have to be ‘in sync’ with an increase in capital values, if one considers the aspect of how attractive REITs would be.

So, the road map is clear: India needs to work at taking REITs from the stage where it ‘shows promise’ to a scenario where it actually gets implemented and takes its rightful place as a new avenue for raising funds to meet Indian real estate investment requirements. REITs can expedite existing projects, but more important, address three perceived inefficiencies: first, increasing debt finance costs; second, locked up equity of private investors; and third, lack of international finance in Indian real estate.

We need to keep in mind that while many countries have implemented the REIT framework, not all have results that include boosting of investor confidence. It has not been the case that in all countries where these have been introduced, they have grown consistently over time. While India has the right set of parameters to fuel the growth of real estate through REITs, India will also need to work towards ensuring that the potential is fully realized.

Assetz property joins LOGOS Group India expansion

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News Point: LOGOS Group has expanded its operations to India through a partnership with the India-based real estate developer Assetz Property Group. The partnership has established a new standalone platform named “LOGOS India”.

Logos India, Assetz Property Group, India real estate news, Real estate news India, Indian property market, MNCs in Indian real estate, JVs in Indian real estate, Indian real estate joint ventures, Foreign funds in Indian real estate, Track2Media Research, Track2RealtyLOGOS is a vertically integrated logistics real estate specialist, with operations in Australia, China, South East Asia and now India. The partnership will combine the institutional management and development expertise of LOGOS with the local development expertise of Assetz to create a leading developer and manager of logistics warehouses and light industrial real estate in India.

LOGOS India is headquartered in Mumbai and is led by Chief Executive Officer, Mehul Shah, a supply chain and logistics specialist with over two decades of experience. The LOGOS India team has specialists dedicated to investment, development, and asset management, and will initially focus on the key logistics hubs of Mumbai, Pune, Chennai, NCR, Bangalore, Hyderabad and Ahmedabad.

Commenting on the partnership, Trent Iliffe, Joint Managing Director LOGOS said, “LOGOS is pleased to announce this key strategic move to expand our operations into India. We are seeing extensive demand from our existing and new customers for institutional grade logistics facilities in the region. Our expansion into India continues to show LOGOS’ commitment to establishing itself in growth markets alongside our important customer relationships.”

John Marsh, Joint Managing Director LOGOS said, “LOGOS has significant experience delivering institutional quality logistics assets in the Asia-Pacific region. We are excited to bring that experience to India through LOGOS India and look forward to working with an established Indian operator of the quality of Assetz during what is an exciting stage in LOGOS’ growth.”

Ben Salmon, Co-founder and CEO of Assetz Property Group, said, “Assetz has a long history of partnering to enhance the growth of our business. I am confident that this association with LOGOS will deliver a market leading warehousing and logistics business in India. This is the coming together of two companies with complementary values. We look forward to lending our local development expertise to LOGOS India.”

LOGOS India is working on closing its first Indian logistics venture with an expected US$400 million of equity commitments. This venture is targeting the existing institutional capital partner relationships of LOGOS and will invest in the development of high quality, modern logistics assets across LOGOS India’s initial target markets.

Together with management, Ivanhoé Cambridge and Macquarie Corporate Holdings are shareholders in LOGOS. Macquarie Capital acted as financial adviser to LOGOS on the formation of LOGOS India.

Is this time for crowdfunding in Indian real estate?

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Bottom Line: While crowdfunding is a recognised model for real estate finance in many parts of the world, there are several practices in the Indian market which loosely resemble the same. Ravi Sinha takes a look.

Crowdfunding, Crowdfunding in India, Crowdfunding in Indian real estate, Debt Crowdfunding, Equity Crowdfunding, Crowdfunding laws, Regulations for crowdfunding, India real estate news, Indian property market news, Investment in Indian property, NRI investment in Indian propertyCrowdfunding in the property market, the world over, is mostly associated with the commercial real estate segment. The most common forms of crowdfunding in the developed property markets are debt and equity.

In debt crowdfunding, developers pre-sell a project, to launch a business concept, without incurring debt or sacrificing equity/shares. In equity crowdfunding, a group of lenders receive shares of a company, usually in its early stages, in exchange for pledged money. The company’s success is determined by how it demonstrates its viability.

Debt crowdfunding may sound similar to pre-launches in India’s housing market. After all, the risk elements are pretty much the same. Investors can take a hit, if their project goes into default, or if the value of the property decreases. There are no guarantees and investments are not insured by any regulating agency.

If we look at the matured property markets, like the United States for example, what we find is that even there regulators at the Securities and Exchange Commission find it very hard to strike a balance that could ensure that while the developers could raise funds from investors but the investors are not left unprotected.

However, in India, crowdfunding is neither officially allowed, nor will any developer go on record, admitting that pre-launches are their way of attracting crowdfunding.

Investing in start-up projects and early stage businesses, whether one calls it crowdfunding or pre-launches, involves considerable risk, such as illiquidity, lack of dividends, loss of investment and dilution. Diversion of funds have also been reported, with many pre-launch schemes, thus hurting the execution of the project.

The developers, on their part, maintain that pre-launches are not crowdfunding. Sandeep Ahuja, CEO of Richa Realty, believes that in a pre-launch, an investor or a buyer puts money on apartment, which may come at a discounted price and has the option to exit the project at any time thereafter, by selling the apartment.

“In case of crowdfunding, the investor is typically investing a very small amount and does not get any specific apartment earmarked/allotted to him. The investor makes money, once the project is completed and the profits are declared, or the property is leased out,” Ahuja explains.

Abhay Kumar, CMD of Grih Pravesh Buildteck, makes a strong pitch for crowdfunding in the housing market. The concept already exists in the Indian market, in the form of loose alliances, he says. “In the commercial segment, crowdfunding can provide assured returns, while in the housing market, pre-launches serve the purpose to some extent. The moot question, is whether we can institutionalise it, to address the liquidity concerns of developers and also safeguard the interest of investors,” wonders Kumar.


Crowdfunding different from organised REIT

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News Point: Crowdfunding in real estate is different from the organised model of REIT and it is yet to gain ground in Indian realty due to lack of trust & transparency.

Crowdfunding, Real estate crowdfunding, Organised funding in real estate, REIT, Indian real estate investment, India real estate news, Indian property market, Track2Realty, Track2MediaAt a recent seminar in Delhi on financial planning and investment in Indian real estate, someone from the audience asked a pertinent question as to how is crowdfunding different from other organised and institutionalised form of investment in the sector. Another investor was curious to know as to how is crowdfunding different from Real Estate Investment Trust (REIT).

With real estate giving better ROI than any other investment vehicle in the country the investors in the India are today exposed to what is happening in the global market. The investors are hence curious to explore what has been tried and tested format in other matured markets – crowdfunding.

However, though crowdfunding the world over has been about peer to peer funding, there are many challenges in the Indian real estate market in absence of any organised trust/agency that make crowdfunding a non-starter.

So, what makes crowdfunding different from REIT. Rattan Hawelia, Chairman of Hawelia Group tries to explain it in simple terms. According to him, REIT is an investment option where the investors can put their money in large-scale properties which is open to everyone by buying stocks. But with REIT the investors only know the portfolio and not the properties. However, in crowdfunding, individuals can single out a particular building or builder to invest in.

“Crowdfunding has more flexible underwriting norms than probably what REIT can offer. That makes it a high risk and high return game. After all, REITable properties are established income producing assets while crowdfunded projects are mostly newly launched and start-ups that need early stages of funding,” says Hawelia.

David Walker, MD, SARE Homes finds another difference between the two when he says REIT has already gained official sanction, while crowdfunding is still not officially recognised in India, unlike in the emerged economies. “Once approved and regulated, crowdfunding has the potential to become more popular than REIT and other organised investments. The latter are cumbersome for retail investors, who prefer customer-friendly investment avenues, as crowdfunding happens to be in the West.”

Sandeep Ahuja, CEO, Richa Realty says in REIT usually many properties are pooled together and the investment is listed and can be transacted. Crowd funding, is mostly done on a single project. It is also not traded on any exchanges and thus not as liquid as a REIT investment.

Requesting anonymity, a developer who has successfully formed a loose alliance of initial investors to get the crowdfunding tries to explain a method in the madness. He asserts that in a market like India where all the legitimate funding options are increasingly drying up there is absolutely no harm in getting crowdfunding as long it is not violating the law of the land.

“Any investor at any given stage of investment through any means knows his consumer rights. So, there may not be a regulating agency like the REIT for crowdfunding in India, yet it is a legitimate business transaction between the willing parties concerned. Many private deals, both debt and equity, happen without the regulator coming into the picture” says the developer.

There is no denying that the ROI would be higher than the REIT for the parties interested to lend to the developers through crowdfunding. Yet, the risks are also much higher in a market like India where access to right information is challenging and transparency is lacking.

Moreover, crowdfunding is definitely very different from REIT – be it with the operational methodology, nature of investable properties, legal framework or the alliance between the concerned parties. And hence, in the absence of any prescribed guidelines the few and far between crowdfunding (if at all they can be called crowdfunding in the conventional sense of the term) is always covert than overt in the Indian real estate.

By: Ravi Sinha

Cushman & Wakefield Appoints Kaustuv Roy as MD-New Business Acquisition

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Bottom Line: Appointment marks Kaustuv Roy’s return to Cushman & Wakefield.

C&W Logo, 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, Track2RealtyCushman & Wakefield has appointed Kaustuv Roy as its Managing Director for New Business Acquisition in India. Kaustuv will be responsible for driving the firm’s business by tapping into the emerging real estate business opportunities from across key regions, especially focused on the India-US corridor.

He will also look at expansion opportunities for Indian conglomerate in foreign markets. He will be engaging with various stakeholders in identifying the opportunities for global companies to augment their real estate portfolio.

India’s potential as a global business destination remains positive. The GDP outlook is pegged at 7.7% in 2018 -19, highest growth rate in the world. It has remained resilient despite disruptive events of 2016 Brexit and election of Donald Trump as President of the USA and currency demonetization in India.

This was demonstrated by the steady net absorption of office space (31 msf), while private equity investment saw its best year (US$ 6 Bn approx.). With the global GDP also looking up at an estimate of 4% by 2018, India’s role in this growth remains crucial. It will continue to be a big destination for cross border business and will be an attractive market for investment for global businesses.

Cushman & Wakefield’s is perfectly poised for this growth phase. The company has the depth of experience and leadership strength in India to provide best in class solutions to our clients. From entry to growth strategies, to investment advisory and transactions, Cushman & Wakefield provides for seamless integration of its services to create value for our clients.

Anshul Jain, Managing Director, India said, “Kaustuv’s appointment is an important step for our India operations that is moving forward at an aggressive pace. His experience as a real estate professional is a significant addition to our formidable leadership team. His role in creating business opportunity from overseas markets will give us a competitive advantage to further solidify our position in the Indian real estate industry. Kaustuv is a very well respected professional within the real estate fraternity, which complements the company’s brand.”

Speaking about his appointment Kaustuv Roy, Managing Director, New Business Acquisition said, “Cushman & Wakefield is globally known for innovation, commitment, integrity and partnership aimed at creating value for our clients’ real estate. Our brand equity and India’s global economic position will be a key catalyst for global companies to look at Indian market. Similarly Indian companies too are looking at globalisation. Our team and experience puts us in a unique position to partner with such companies. I look forward to working with a group of very talented and dedicated professionals to further fuel the growth of India business.”

Kaustuv has held multiple leadership roles during his 18-year tenure with Cushman & Wakefield from 1998 to 2016. Most significantly as the firm’s Head of International Desk, Asia Pacific based in New York from 2012 until 2015.

Under his leadership, Cushman & Wakefield built a successful cross-border business between the US and India, a legacy he will now build on to usher in accelerated growth. He also served as the firm’s Country Manager for Philippines.

An industry leader, Kaustuv brings over two decades of real estate industry experience. Kaustuv’s appointment as Managing Director for New Business growth in India marks his return to Cushman & Wakefield.

L&T Construction wins orders valued Rs. 2416 Crores

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News Point: The construction arm of has won orders worth Rs. 2416 crores across various business segments in the month of June 2016.

L&T, Track2Realty, India real estate news, Indian realty news, Property news, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Larsen & Turbo, Investment in Indian real estateBuilding & factories business:

The Business has won orders worth Rs. 1165 crores.

A prestigious high rise has been secured from a leading developer in Mumbai. The scope of work involves civil and structural works for the construction of two residential towers, each having 3 basements, 7 podiums, 66 floors and other ancillary buildings.

Another order has been bagged for the construction of a mixed use development (MUD) from a renowned customer in Kolkata. The scope involves civil and structural works for the construction of two towers of G+15 and G+7 floors respectively with 2 levels of common basement.

The business also secured add-on orders from various ongoing jobs.

Power transmission & distribution business:

The Business has bagged orders worth Rs. 1120 crores in the domestic and international markets.

In the international market, a major engineering, procurement and construction order has been bagged from a reputed customer in the Middle East. The scope includes construction of a medium voltage overhead line which will enhance the reliability of the existing network.

On the domestic front, orders have been received from Paschimanchal Vidyut Vitaran Nigam Limited (PVVNL) in Uttar Pradesh.

The first order involves the construction of 33kV substations and associated lines in Ghaziabad, which falls under the Integrated Power Development Scheme (IPDS) while the second order involves rural electrification including feeder separation works in Meerut under the Deen Dayal Upadhyaya Gram Jyoti Yojana scheme (DDUGJY).

Additional orders have been also received as part of the contract variances. 

Smart world & communication business:

The Business has won orders worth Rs. 131 crores which includes a new order from RajCOMP Info Services Limited, a government of Rajasthan undertaking, for establishing and commissioning command & control centres at Bikaner, Bharatpur and Jodhpur cities under the Surveillance and Incident Response Project. 

IKEA will build a 400,000 sq. ft. store in Mumbai

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News Point: IKEA has bought land in Navi Mumbai; one IKEA Store will create over 500 equal job opportunities.

IKEA, the Swedish home furnishings company has announced the purchase of its first land parcel in Mumbai and second one in India after Hyderabad. The 23 acres site is strategically located in Navi Mumbai on Thane Belapur Road.

The IKEA store in Mumbai is planned to be around 400.000 square feet and is expected to have more than 5 million visitors per year. To be easily accessible for many people the store site has good access to public transport and next to an existing sub- urban railway station, “Turbhe”, located on the Thane Belapur road.

This step is yet another confirmation of IKEA’s large expansion plans in India. The company in parallelis evaluating suitable sites in the cities of Bangalore, Mumbai and Delhi & NCR and plans to open 25 stores in India by 2025.

Speaking on the occasion, Principle Secretary Industry Maharashtra, Apurva Chandra, said “We are very happy that we will soon see an IKEA store in Mumbai. IKEA will bring best business practices, many employment opportunities, infrastructure development and contribute to the growth of the retail sector in the state. We believe that IKEA will work as a catalyst in our development plans. The government is committed to provide the necessary support to IKEA forits future expansion plans in the state.” 

Juvencio Maeztu, Chief Executive Officer, IKEA India, said, “Maharashtra is one of the most important market for IKEA. Along with setting up retail stores, we will expand our supplier landscape and grow local sourcing as much as possible. Each IKEA store will employ 500-700 coworkers directly and another 1500 indirectly, engaged in providing services. We are committed to having 50% women in our organization at all levels and giving equal opportunities to all. We will bring a unique shopping experience through our inspiring stores offering affordable home furnishing products for the many people in Mumbai.”

IKEA has been sourcing from India for the last 30 years and it plans to double its sourcing volumes by 2020. Through it 50 suppliers, IKEA today employs 45,000 people directly and about 400,000 in the extended supply chain. It has recently organized three “Make More in India” campaigns, including one in Mumbai to look for new suppliers.

Affordable housing in Dubai – a mirage in the desert?

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Dubai has always been an exciting destination for employment – for Indians as well as the rest of the world.

Ashwinder Raj Singh JLLI, PE Investment, NRI investment, NRI property market, Indian real estate news, India realty market, India property news, Investment in Indian real estate, Private Equity Deals, Track2Media Research, Track2RealtyThe petro-dollar ensured that the country grew in leaps and bounds, and provided excellent employment and living conditions. This explains the swanky high-rises, glittering malls and commercial centres sprawling all over the country. Investors with deep pockets have shown market preference to invest in residential projects catering to the luxury segment, thus prompting developers to come up with projects that cater to affluent.

This resulted in a shortage of affordable housing for the service class which is living on rent and cannot afford to buy homes in Dubai. The average household income of service class citizens is between 10,000-30,000 UAE Dirham ($2,720-$8,170). At this income, given the cost of living, they can afford to pay annual rentals of Dh72,000 ($19,600) and maybe to buy a property costing around Dh800,000.

However, as per the UAE mortgage regulations, a prospective buyer needs to deposit 25% of the property’s cost in advance. If a property costs Dh800,000, the buyer needs to deposit Dh200,000, which is not an easy amount for a normal citizen to raise immediately. In the case of off-plan sales, the loan-to-value is 50% maximum, which means that a borrower has to pay 50% using his or her own resources in savings, equities or other sources.

The average size of a property in areas like Dubai Marina and Dubai Downtown, where a 2-bedroom apartment sells for approximately Dh4 million.

Even though Dubai’s property prices and rentals have stabilised in the past year or so, they are still higher than two years ago and look set to rise again by 2017, owing to Expo 2020 being hosted by Dubai. Also, developers are currently not investing in building projects catering to the middle-income segment. As per the records till the 3rd quarter of 2015, out of the 19,500 projects launched in the country, a mere 22% meet affordable to middle-income housing criteria, despite the substantial demand in this segment.

The primary reason is the low margins in this segment, compared to the very high margins in high-end properties. Some big developers in Dubai have as much as 50% gross margins in their projects, thanks to government-provided land banks and other tax benefits.

The so-called surge in affordable housing projects development in the past year and a half is not making much of a difference, as these are being sold on freehold title and mainly to investors in bulk. This way, the prices of such properties are subject to market influences and do not necessarily reach the targeted middle-income group.

This has resulted in more and more people moving away from the centre of the city for more the more affordable homes on the fringes. However, it has also led to an increase in rentals in these areas, as well as a longer commute for employees. Also, it has not helped them build the savings required for advance deposits. Sharjah has proved to be an attractive destination where property prices are almost half of those in Dubai, but the long distances and comparatively lower quality of life than in Dubai give pause to most of the working class.

Another factor that has led to a higher demand and lower supply of affordable housing in Dubai is non-compliance with the government’s regulations, one of which categorically states that developers building high-end luxury projects should reserve a certain percentage of the property for mid-housing segment. This rule has largely remained on paper only.

That said, regulators and developers alike realize that the demand for affordable housing in Dubai is escalating. This has resulted in a flexible payment plan, which has met with some success. Under this plan, developers either provide finance to buyers themselves or ensure that buyers pay a fixed monthly amount instead of a huge initial lump sum.

Things may not change overnight, but the fact that demand clearly exists will ensure that more funds flow into affordable housing projects. That said, developers will not compromise when it comes to a minimum profit saturation; being business establishments, they are answerable to their shareholders as well as financiers. Once that is ensured, the supply of affordable housing in Dubai will begin to match the demand more logically.

By: Ashwinder Raj Singh, CEO – Residential Services, JLL India

Smart strategies for PEs investing in real estate

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By: Ashwinder Raj Singh, CEO – Residential Services, JLL India

Ashwinder Raj Singh JLLI, PE Investment, NRI investment, NRI property market, Indian real estate news, India realty market, India property news, Investment in Indian real estate, Private Equity Deals, Track2Media Research, Track2Realty   Private Equity funds, famously known as PEs are invested heavily in the Indian real estate. Even though the sector is emerging only gradually from its slowdown, this could be the golden period of PE investments to invest further, as the opportunities being offered are humungous.

Some of the highlights of their performance – and how they can maximise their presence and profits by being smart:

Big opportunity

The total PE inflows stand at Rs. 11,080 crore against only Rs. 4,000 crore in the corresponding period of last year. The current real estate market is huge for PEs to enter, as most of builders with projects in progress are looking forward to refinance their loans at a lower rate of interest.

With the economy on an upswing and most of these projects nearing completion, it makes sense for PEs to refinance loans and enter deals that will fetch great returns in a short period of time.

Simultaneously, developers can pay off their earlier investors, refinance their debts at lower rate of interest, get some top up capital and reduce their overall cost of operations. It’s a win-win situation all around.

Selectivity is in

  • Select Players: A smart strategy that many PEs are following (and which others should emulate) is that they are not investing in every project that shows promise.

Instead, they assiduously research real estate developers’ track records, market reputations, delivery capabilities, financial health, flexibility in conducting business and willingness to share the control of operations. Only after such due diligence will PEs invest.

With a lot of organised developers entering the sector, it is becoming easier for funds to find the right players to back.

  • Select Markets: In the phase before the economic meltdown of 2008, PEs were investing in all possible markets to distribute wealth and maximise returns. The lesson they learned is that it is better to invest in top 7-8 cities where exposure to developers is well organised and can be tracked, and the markets themselves are more transparent.

The smaller markets will take time to evolve. With time, there will be more reliable information coming out from them; till then, it is smart to stick to the primary cities. Profits can be re-invested in Tier 2 and Tier 3 cities at a later stage.

Resident experts

It is not a fixed position in a venture capital firm and may not be a fixed job profile either, but it makes sense to have an in-house expert working for you. These individuals basically act as catalyst to spot the next big idea or big investment, and can help bring together a project that big PE funds would have missed.

Also, if these entrepreneurs in residence themselves have a project to launch that meets the required criteria of investments, it makes more sense than to take blind risks with a newcomer.

Independent Directors on the BOD

After the Lehmann Brothers collapse that brought down the global economy, there is a greater thrust on transparency when it comes to investing funds that can have an impact on the common man. It makes sense to appoint an independent director in a team of Board of Directors who is not from the real estate sector.

This way, a PE can secure an independent voice bereft of ulterior motives and hidden agendas, who will only work to bring in efficiencies as well as improve accountability of the firms – especially those that have a direct B2C business model.

Exciting times ahead

Global investors are queuing up to invest in India, thanks to a growth story that is unfolding at rate better than expectations. Also, with a lot of churning over the past few years, the real estate sector as a whole is getting its act together to bring in transparency. It is evolving into a better organised sector, at least in the major real estate markets of the country.

These are the signs of bigger and better things ahead for those who invest at the right time and in the right place. For PEs looking aiming to distribute their investments and yet ensure healthy returns for their investors, Indian real estate sector is definitely the place to be.