Wealth management companies are looking at expanding their real estate advisory teams. Most of the firms are planning a 10-12 member teams solely for advising on real estate deal. The likes of Motilal Oswal's wealth management and RBS Private Banking are planning to expand the real estate advisory team.
"With equity markets not doing well, high networth individuals (HNIs) and ultra high networth individuals (UHNIs) are looking at real estate especially the commercial space, as an investment avenue. We are evaluating the prospect of starting a real estate advisory business," says Prateek Pant, head of wealth solutions at RBS Private Banking.
While Pant did not wish to speak on the strength of the team, industry experts are of the view that they may start with a one-member team in each of the metros and expand it to 8-10 member teams by the end of the year.
Realty space is also gaining favour due to the lucrative returns it is offering, says Amar Ranu, senior manager, research & advisory (third party products), Motilal Oswal Wealth Management. "It offers returns in the range of 10 to 12 per cent and hence investors are flocking to this space," he explains. "As we are seeing many of our clients wanting to invest in real estate, we are looking at doubling our relationship managers (RM) count to 70 over the next one year, from around 40 now."
In the Wealth Report 2012 by Knight Frank & Citi Private Bank, Will Dickens, senior vice-president at Citi Private Bank's global real estate investment team said that real estate is fast emerging as a favourite investment option for the rich. "Bond style income is in demand, but the debt crisis has trimmed back the number of countries offering triple-A covenants (agreements), encouraging investors to look for viable alternatives. With steady income from rent, property offers investors an equivalent of the bond's coupon payment, but with the possibility of some additional income if rents increase," he said.
Others like ICICI Securities and ASK Wealth, have a team for the real estate business but as per industry sources, these firms may also expand their teams by 3-5 members in one year. But Ashish Kehair of ICICI Securities said his firm has been focusses on realty for last 2-3 years and is not looking at any major expansion.
The rich investors are putting money in their individual capacity and the average ticket size is between Rs 10 and 20 crore. In the National Capital Region (NCR), such investors commonly take the angel investing route, where a group of people with smaller investment amounts put their money together. For instance, if a project requires a Rs 20 crore investment, four investors with Rs 5 crore each together invest. Individual investments in this space goes up to Rs 200 crore. The time horizons is very long, 7-8 years, on an average. But, one has to stay locked in for a minimum of 3 years.
Given that demands in metros and tier I cities are sustainable or not diminishing, commercial property investors are investing in these cities. Says Amit Goenka, national director - capital transactions at Knight Frank India says, "Opportunities in metros and tier 1 cities is perpetually and hence these investors stick to these cities."
Some believe that the rental yields of commercial properties, specially in cities like Mumbai, may drop over the the next year or so. However, it may not impact the investors due to the minimum lock-in period.
As for returns, investors earn anywhere between 9-11 per cent and with capital appreciation after the initial three years, a total of 15-18 per cent internal rate of return (IRR) can be expected.
Many of the HNI and UHNI clients or promoters of companies, route their investments through their companies or through SPVs / SPEs (special purpose vehicle or entity) for the purpose of tax benefit.
The process of investing in these properties takes a long time. Firstly, the wealth manager will have meeting with developers and scout of investment opportunities for their clients. Once we do the necessary due diligence, we then approach the clients with it. If the client is interested in the project then we arrange a meeting with the developer. It could take at least (minimum) five meetings for a final investment decision to be made."
"It is the big names that are going in for expansion of their real estate business. Clients that can stay locked in for 7-8 years and can invest more than Rs 5 crore are the ones that are looking at commercial real estate as an investment option," says Raghvendra Nath, MD, Ladderup Wealth Management.