Incident 2day
MUMBAI --At least four real-estate funds are raising nearly 25 billion rupees to invest in rental properties, lured by the prospect of steady rental income.
Interest in rental yield assets has also increased as there is now a substantial stock of property with high specifications that was established in the past three-four years.
"It's the first time so many rental yield focused funds are there in the market," said Amit Goenka, national director, capital transactions, Knight Frank India Pvt. Ltd., a real estate services company.
This marks a shift in interest from investments in development projects to developed commercial space which has not been completed and rented out. Returns from development projects have been lower than expected due to the dramatic drop in prices following the slump of 2008-2009. Delays, partly due to the slowdown, have also eroded the internal rate of returns.
In contrast, rental properties have done better. For instance, earlier this month, Kotak Realty Fund sold its stake in Peepul Tree Properties Pvt. Ltd., an information technology park, to Tata Realty and Infrastructure Ltd., for 3.85 billion rupees, making a four-fold return on its initial infusion of 950 million rupees in 2006.
Private equity firms are drawn to stabilized assets as they do not carry development risks, which are difficult to underwrite, said Anuj Puri, chairman and country head, Jones Lang LaSalle India, referring particularly to issues such as land acqusition.
That's want prompted JM Financial Property Fund, the real estate fund of JM Financial Ltd., managed by Infinite India Investment Management, to raise a 4 billion to 5 billion rupee fund, to be called JM Financial Real Estate Income Fund, from domestic investors. The fund will focus on rental properties, and has been registered with the regulator, Securities and Exchange Board of India.
"We plan to raise the fund from high networth individuals and domestic institutions over the next couple of quarters," said R.K. Narayan, director, Infinite India.
Anand Rathi Financial Services Ltd. is raising a fund of 2.50 billion rupees, with a similar focus, along with Knight Frank. After deploying up to 75% of this money, the fund will raise a $200 million off-shore fund.
Indiareit Fund Advisors Pvt. Ltd., the real-estate fund promoted by Piramal Group Chairman Ajay Piramal, plans to raise around 13.5 billion rupees in a debt and rental yield fund this year.
LIC Housing Finance Asset Management Co., a unit of LIC Housing Finance, is planning to raise 5 billion to 7.5 billion rupees real estate fund, which will invest in rental yield and other assets within real estate.
"We are tying up with different domestic institutional investors and financial institutions,"said a top LIC Housing Finance official, who didn't want to be named. The fund, registed with SEBI, is expected to be launched in June this year.
These funds also are betting on the upward trajectory in demand for office space in the country.
Between 2010 and 2014, demand expected to rise to 240 million square feet. The National Capital Region, which includes Delhi and its suburbs, Mumbai and Bangalore will account for 46% of this demand, according to the 2010 Cushman & Wakefield India Real Estate Investment Report.
"For developers, this is a good alternative source for funding (to) monetize their assets," said Mr. Narayan of Infinite India.
Interest in rental yield assets has also increased as there is now a substantial stock of property with high specifications that was established in the past three-four years.
"It's the first time so many rental yield focused funds are there in the market," said Amit Goenka, national director, capital transactions, Knight Frank India Pvt. Ltd., a real estate services company.
This marks a shift in interest from investments in development projects to developed commercial space which has not been completed and rented out. Returns from development projects have been lower than expected due to the dramatic drop in prices following the slump of 2008-2009. Delays, partly due to the slowdown, have also eroded the internal rate of returns.
In contrast, rental properties have done better. For instance, earlier this month, Kotak Realty Fund sold its stake in Peepul Tree Properties Pvt. Ltd., an information technology park, to Tata Realty and Infrastructure Ltd., for 3.85 billion rupees, making a four-fold return on its initial infusion of 950 million rupees in 2006.
Private equity firms are drawn to stabilized assets as they do not carry development risks, which are difficult to underwrite, said Anuj Puri, chairman and country head, Jones Lang LaSalle India, referring particularly to issues such as land acqusition.
That's want prompted JM Financial Property Fund, the real estate fund of JM Financial Ltd., managed by Infinite India Investment Management, to raise a 4 billion to 5 billion rupee fund, to be called JM Financial Real Estate Income Fund, from domestic investors. The fund will focus on rental properties, and has been registered with the regulator, Securities and Exchange Board of India.
"We plan to raise the fund from high networth individuals and domestic institutions over the next couple of quarters," said R.K. Narayan, director, Infinite India.
Anand Rathi Financial Services Ltd. is raising a fund of 2.50 billion rupees, with a similar focus, along with Knight Frank. After deploying up to 75% of this money, the fund will raise a $200 million off-shore fund.
Indiareit Fund Advisors Pvt. Ltd., the real-estate fund promoted by Piramal Group Chairman Ajay Piramal, plans to raise around 13.5 billion rupees in a debt and rental yield fund this year.
LIC Housing Finance Asset Management Co., a unit of LIC Housing Finance, is planning to raise 5 billion to 7.5 billion rupees real estate fund, which will invest in rental yield and other assets within real estate.
"We are tying up with different domestic institutional investors and financial institutions,"said a top LIC Housing Finance official, who didn't want to be named. The fund, registed with SEBI, is expected to be launched in June this year.
These funds also are betting on the upward trajectory in demand for office space in the country.
Between 2010 and 2014, demand expected to rise to 240 million square feet. The National Capital Region, which includes Delhi and its suburbs, Mumbai and Bangalore will account for 46% of this demand, according to the 2010 Cushman & Wakefield India Real Estate Investment Report.
"For developers, this is a good alternative source for funding (to) monetize their assets," said Mr. Narayan of Infinite India.
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