With only $400-500 million of foreign funds flowed into the Indian real estate sector in 2009-10, the outlook ahead seems to be far from being rosy. While in 2006-07, domestic real estate funds got commitments for $8-10 billion, of which about $5 billion made its way to the Indian market, the Indian real estate funds trying to raise a couple of billion dollars overseas are struggling to tie up commitments, with potential investors put off both by integrity worries over India’s realty sector and still-depressed property markets abroad.
Some half-a-dozen funds have been scouting abroad for about a year to raise between $200 million and $700 million (Rs.900-3,000 crore) each. The foreign money is crucial. India’s real estate sector is poised to expand after a couple of slow years, with developers again taking on large projects, but is held back by a severe fund crunch.
Loans from banks, their biggest source of capital, are tight because of the central bank’s hawkish stance on lending to the sector. Domestic fund-raising by private equity (PE) firms is on a smaller scale of Rs.50-150 crore.
Ambrish Baisiwala, global chief executive of Atlanta-based Portman Holdings Llc., said it is challenging to raise money in the current scenario. The real estate development company has been in the market since late last year to raise a $200 million India Residential Real Estate Fund.
“Compared to Australia and Japan, which are considered core markets with good valuations and returns, investors still worry about the opaqueness and business practices (in) the Indian property market,” said Baisiwala.
Last year’s corporate bribes-for-loans scam and the investigation into alleged wrongdoing in the allocation of second-generation (2G) telecom spectrum both involve real estate companies.
The Bombay Stock Exchange’s realty index declined 37.51% to 2072.75 points last year, while the wider Sensex index gained 8.76%.
Red Fort is the only realty fund that raised money overseas last year. Last month, it invested about Rs.200 crore in a 108-acre township project in Gurgaon that’s being developed by Ansal Properties and Infrastructure.
