After hitting a five-year low in fund-raising globally, real estate funds are back on track. A number of new and existing real estate funds are planning to tap domestic and offshore markets to raise funds.
The revival of sentiment globally and in the real estate sector has led to funds chasing high net worth individuals (HNIs) and ultra HNIs flush with liquidity. Domestic real estate funds are using this opportunity to expand their existing funds or do a fresh round of fund-raising.
The Piramal group-promoted Indiareit Fund Adviors is planning to raise a Rs 500-crore real estate fund. ASK Investment Advisors, which raised a domestic real estate fund recently, is planning to raise a $250-million offshore real estate fund. Dewan Housing, a player in the housing finance segment, is planning to raise a $250-million real estate fund. Sources said ICICI Ventures was also looking at launching a real estate fund by the fourth quarter of this year. Morgan Stanley, which has a global real estate fund in India, might also look at raising an India-focused real estate fund by the end of this year, sources said.
Sunil Rohokale, executive director, ASK Investment Holdings, said: “At this point in time, investors are looking to park money in growth assets. Real estate prices have corrected sharply in some pockets. Although there is a lot of liquidity in capital markets, developers are still starved for funds. That is where real estate funds have a role to play. Real estate players have a huge land bank. However, the capital needed to kick off these projects is not there.”
According to a Motilal Oswal report, one of the key signs of recovery in the sector is asset prices. Since June, residential real estate prices in cities such as Mumbai and New Delhi have increased by 15-20 per cent on an average. Since February, the global real estate investment trust market has seen a record equity infusion of $16 billion. “Equity infusion by investors at this point in the cycle suggests they see value at current price levels,” said the report.
“There is a good appetite among HNIs and super HNIs for real estate investments. But, they have become more conscious about the fund strategy and the kind of fund managers they choose to be with. They are also increasingly focusing on exits. HNIs are also looking at direct investments,” said a wealth manager who did not wish to be named.
Real estate funds typically invest at project level. For example, Milestone Real Estate Fund, a Sebi-registered venture capital fund, recently invested Rs 110 crore in a residential project in Kolkata. Milestone is developing the project along with Godrej Properties.
Experts say a major reason behind HNIs investing in real estate funds is low ticket sizes. Prior to 2006, real estate funds were beyond the reach of HNIs as entry barriers were too high. However, with ticket sizes coming down to as low as Rs 25 lakh and even Rs 10 lakh in some cases, HNIs and ultra HNIs can easily invest in these funds.
“There is selective appetite among ultra HNIs to invest in income-yielding real estate assets. A number of people are investing to hedge against inflation. Internationally, investors hedge through commodities. In India, they do so through real estate. Having said that, investors have become very choosy on who the fund manager is. They are also looking at execution risks in projects,” said Satyanarayan Bansal, CEO, Barclays Wealth.