Real estate funds back in vogue

Source:BS:Raghavendra Kamath / Mumbai April 28, 2010, 0:16 IST

Plan to raise Rs 7,500 crore from domestic institutional and retail investors.

Looking at the subdued demand for realty investments in international markets, Indian fund managers and property developers are betting big on domestic real estate funds.
   

Fund managers and realtors plan to mop up nearly Rs 7,500 crore from domestic institutional and retail investors. At least, four fund managers and a similar number of realtors are either planning to launch or have recently launched their funds.

Offshore funds were a fad among Indian fund managers during the boom times of 2004-08, when several of them, including ICICI Venture, Red Fort Capital, HDFC, Kotak and Fire Capital, launched such funds to tap global investors, bullish on Indian realty sector.

But things seem to be turning in favour of rupee funds.

While Ajay Piramal Group-promoted Fund Advisors is already in the market to raise Rs 500 crore, ICICI Venture and the Aditya Birla Group are planning to raise around Rs 2,000 crore and Rs 1,500 crore, respectively, in the next couple of months, according to sources.

Shashi Kumar C, head of real estate investment advisory at Aditya Birla Financial Services, confirmed the move. An ICICI Venture official said though the plans were in place, the firm had not zeroed in on the exact amount to be raised.

Another home-grown fund house Motilal Oswal recently raised Rs 200 crore and got commitments from investors for a similar amount.

Though ICICI Venture had plans to launch a second offshore fund of around $1-1.5 billion, it could not go ahead due to the slowdown in the realty sector. Also, its key employees, including managing director Renuka Ramanathan, quit last April.

"International money has dried up. That is why most of them are looking at domestic funds," said Ambar Maheshwari, director of investments at DTZ, an international property consultancy. Property developers are looking at new funds because of tight liquidity conditions arising out of drying up of bank credit, slowing home sales and delayed equity issues.

Unitech, the country's second-largest developer, has a fund manager, Unitech Realty Investors, and it recently launched the Rs 300-crore Mumbai Redevelopment Project. It has plans to launch similar such funds to finance its projects. Construction major Shapoorji Pallonji also plans to launch a fund to invest in projects worth $2 billion in the next couple of years.

Mumbai-based Ackruti City has plans to raise Rs 400-500 crore and tied up with investors such as Pacifica and Beekman Helix as partners.

“Developers are thinking that instead of going to a third-party fund manager, they can directly approach the source and raise funds. They can save on margins and fees given to the managers,”said Amit Goenka, national director, capital transactions at Knight Frank, an international property consultant.

Fund managers feel domestic funds offer more flexibility in terms of investment, as offshore funds are governed by foreign direct investment (FDI) norms.

According to FDI norms, 100 per cent FDI is allowed under automatic route, only if the development project has a minimum built-up area of 50,000 sq mt and a minimum capitalisation of $10 million for fully-owned subsidiary and $5 million in case of joint ventures. It further stipulates that original investment could not be repatriated within three years from the completion of minimum capitalisation.

"Domestic funds can be used as debt or quasi-debt structures, but offshore funds have constraints on that," said Sunil Rohokale, ED, ASK Group.