[India Property, Real Estate India] New realty funds — alternative to propert...

[Noida Property 7]

India Property

Living in Mysore need not deter you anymore from investing in a slice of prime property in Mumbai. What's more, this can be done with as little as Rs 5 lakh of capital.
After the realty meltdown in 2008, a number of private equity/venture capital firms have launched real estate funds targeting retail and high net worth individuals (HNIs) in contrast to the earlier focus on the ultra rich and institutions.

This has naturally resulted in the size of minimum investment coming down from Rs 50 lakh-1 crore in the heydays of 2005-07, to Rs 10-25 lakh. In a few cases promoters have come up with products to give investors an opportunity to participate in these ventures with sums as small as 5-lakh. Funds that target smaller investments typically come from new players.
 The Rs 750-crore Aditya Birla Real Estate Fund and the Rs 500-crore India Real Estate Fund I from Azure Capital Advisors, besides the realty fund planned by Anand Rathi Financial Services-Knight Frank, are recent cases in point.

Such funds, which either have a broad strategy of investing in residential projects in chosen cities or offer thematic investing in commercial property that provide rental yields or in Mumbai redevelopment projects are increasing in numbers. An indicative yield (no guarantee) of anywhere between 12-18 per cent per annum offered by these funds attract investor attention.
Smaller investors

One reason for increased interest in such funds could be the soaring property prices, says Mr V. Mahadevan, CEO, Wealth Advisors (India) Pvt. Ltd. “The pricing of property has gone beyond reach. This is helping increased participation in realty funds if one is looking at it as an investment option,” he said.

As venture capital funds are usually sold through private placement, firms such as Birla Sun Life Financial Services, Motilal Oswal and Anand Rathi have floated their own private equity arms perhaps to tap their existing private client and HNI base on such funds.
Not suitable for all

However, real estate funds are for investors who already have savings parked in other asset classes and also have allocable surplus in hand. As Mr Mahadevan states, “for a 22-year-old guy who is looking to own his property, a real estate fund cannot be viewed as a substitute”.
While real estate funds may help investors do away with the hassle of locating a good property to invest, offer diversification and avoid the legal impediments involved, they remain a ‘medium to high risk' investment option.

Mr Sunil Rohakale, Executive Director, ASK Investment Holdings, feels that it is important for investors to assimilate the fund strategy besides knowing key clauses tied to such funds. Real estate funds typically come with a 5-8 year lock-in, which makes them illiquid. The structure, fee and payout patterns in these products are also complex.

However, the risks associated with realty funds can to some extent be mitigated if investors choose the funds that suit their risk profile opines, Mr Shashi Kumar, Head Real Estate Investment Advisory, Birla Sun Life AMC. “Given the combination of styles of investing and the various themes available, investors can choose the one that suits their risk profile”.

That said, real state funds are not strictly retail investment products. A Rs 10-lakh investment in a realty fund would be recommended only when the assets of the individual are say at least Rs 1 crore, states Mr Mahadevan.

A Real Estate Investment Trust or a real estate mutual fund would be retail investment options in the real sense, if they do come in to the market feels, Mr Amit Goenka, National Director - Capital Transaction, Knight Frank India.


http://www.thehindubusinessline.com/2010/11/07/stories/2010110751300100.htm

www.RealIndiaProperty.co.in

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Posted By Noida Property 7 to India Property, Real Estate India at 11/09/2010 11:02:00 AM