Real estate fund– an attractive alternate investment avenue

With the current economic situation for real estate and infrastructure development in India being a relatively volatile one, times are tough for developers to launch & deliver quality projects within stipulated timeframes. The tide being high, some are neck deep in a liquidity crunch whereas some are barely managing to stay afloat, and most are discounting heavily to maintain cash flows. The government is playing messiah by assisting the industry with favourable schemes such as introduction of real estate investment trusts and InVITS, easing FDI norms in real estate, and most recently the favourable amendments in the Regulatory Bill etc. there exists a light at the end of the tunnel. There exists a substantial potential upside in both commercial and residential real estate in India for the next 5-8 years. Initiatives such as ‘Make in India’ and recent FDI reforms announced for real estate, will see increased amounts of FDI being pumped into the Indian economy which will result in increased job creation and subsequently increase in demand for commercial and residential spaces. Industry estimates reveal that India is going to see a massive spurt in international IT presence over the next two years. In 2015, Bangalore & Mumbai are global leaders in the commercial lease space by giving over 15% yields and going forward, Mumbai is slated to deliver over 20% yields by 2018. With traditional bank financing for real estate remaining hard to come by and a likely revival of the real estate industry in sight, the most likely vehicle to sustain and develop this space are alternate investments via private equity funds who are in a position to provide, demand and deliver. A private equity fund works in a similar fashion to a mutual fund, wherein a fund house raises money from a pool of investors and the fund manager uses his expertise to invest the money across different assets. The main difference between the two is the minimum investment size and frequency of valuation. While mutual funds conduct valuation everyday, PE conduct is mostly at the end of the year. A PE investment is a minimum of Rs 1 crore, and comes in various structures, such as debt (Timely interest payouts to investors), equity (purchase of physical apartments, appreciation benefit is passed on the investor) and hybrid (mixture of debt & equity) structures. It is an investment that caters mainly to HNIs and usually has a fixed lock in period. 

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