Edelweiss Alternative Asset Advisors and Milestone Capital are together raising about $1.1 billion (Rs 7,200 crore) to invest in the country’s real estate. While private equity firms, including Goldman Sachs, Warburg Pincus and Singapore’s GIC, have started enquiries about viable projects to put their money in — a repeat of 2007 when global investors queued for a slice of India’s property market.
The government’s efforts to boost the industry has led fund houses to place renewed bets on the sector, which has been among the worst hit due to the global slowdown.
However, wary of the fact that several developers are saddled with huge loans, these financial firms are setting up structured credit funds so that cash flows can be controlled. An example is routing funds through an escrow account — a neutral account — which will be used based on the project’s progress.
Edelweiss will raise about $1 billion for its residential real estate fund that will target mid-market housing projects in Delhi-NCR, Mumbai, Pune, Bangalore and Chennai. It is hopeful of its first close of $350 million by December-end.
“Projects are stuck because of approvals, regulatory delays. We will not provide investment for land purchase and will only make an investment in a project after all approvals are in place,” said Venkat Ramaswamy, executive director, Edelweiss.
Milestone recently launched its second structured debt fund that allows investors freedom by not locking them in through equity and gives them pre-agreed returns. This route is preferred as developers do not have to put projects as collaterals. At present, structured debt funds for real estate are generating returns of about 20%. “The real estate market is at the bottom-end of the cycle, and prices will appreciate as there is demand for affordable housing if the government’s target of housing for all by 2022 is to be achieved,” said Rubi Arya, executive vice-chairman, Milestone Capital.
“There is pent up demand. There is a requirement of 60 million homes, of which 40 million, in urban areas by 2022.” Milestone is planning a commercial real estate fund in 2016.
Canada’s Pension Plan Investment Board last month set up an office in Mumbai to monitor investment opportunities and has an alliance with Piramal Enterprises to provide structured debt for residential projects.