Mumbai: Many new real estate funds are eyeing stressed assets and mid-income or affordable housing projects as the underlying theme for their investments.
Private equity inflows in real estate rose 15% year-on-year to $2.6 billion in the January-March quarter, eclipsing the first quarter of the past 11 years, said property consultancy Cushman and Wakefield.
The residential sector gained prominence with the highest inflows in 10 quarters, as investors looked to gain from government incentives in affordable housing.
In the March quarter, private equity inflows into the residential sector in India more than doubled to $1.32 billion. Mumbai accounted for around 19% of the total deals.
ASK Property Investment Advisors has raised the ₹900 crore ASK Real Estate Special Situations Fund, which aims to reinvigorate housing projects that have witnessed slow sales, or do not have the finances to complete the project on time.
New real estate funds focusing on stressed assets, affordable housing projects
Amit Bhagat, chief executive officer and managing director of ASK Property Investment Advisors, said that the fund will offer “preferred equity” and will follow a “payable when able from the surplus (cash flows) of the project” model.
“The idea is to give the developer time to complete the project as per RERA (Real Estate (Regulation and Development Act)) deadlines. As it is, sales are slow and the developer will not be able to service loans if he is under pressure of quarterly repayments,” Bhagat said.
ASK’s special situations fund comes at a time when residential developers are grappling with limited cash flows due to slow sales, besides experiencing problems with servicing debt.
Real estate investment firm Motilal Oswal Real Estate also launched a ₹1,500 crore fund—India Realty Excellence Fund IV—to primarily invest in mid-income housing projects.
“We will invest in around 15 deals and the strategy is to invest 50% of the corpus in the form of equity, and the rest in structured debt. We will invest in early- or land-stage of a project,” said Sharad Mittal, director and chief executive officer, Motilal Oswal Real Estate.
Investment firm Nisus Finance Services Co. Pvt. Ltd is also raising a $50 million offshore fund, with another $50 million as a green-shoe option, to invest in approved affordable housing projects, said Amit Goenka, managing director and chief executive officer, Nisus Finance.
It will also raise a new ₹400 crore fund later this year from domestic investors. The new fund will primarily offer debt and follow a similar investment theme in the mid-market residential space.
“For the domestic fund, we will look at projects with homes of 500-1,000 sq. ft in size. While we look at all main property markets, NCR is an important market for our strategy,” said Goenka.
HDFC Capital Advisors Ltd, which raised $550 million in the first close of its second affordable housing fund, HDFC Capital Affordable Real Estate Fund-2, formed an affordable housing platform with Prestige Estates Projects Ltd earlier this year, to jointly invest ₹2,500 crore in low- and mid-income housing projects.