Increasingurbanization which is likely to encompass two out of every five Indians, amarked shift in lifestyle from
necessity to comfort and luxury
as the primary drivers of spending, growth in the services sector
contributing to affluent middle class in
India, conducive fiscal regime ensuring
economical home loans with commensurate tax breaks for the end users
which in turn allowing an individual to own a house even at the
age of 27 today is sure to provide the required impetus to
the real estate sector. By virtue of the inherent
need for ownership in an increasingly affluent
society real estate will see an exponential growth.
Increased
impetus on infrastructure development across the country, innovative growth
models like Special Economic Zones, impetus on logistics infrastructure to
boost local industry with private sector
and FDI participations will only add to the glitter
of the real estate sector. With real estate funds willing to partner with high networth individuals to create
capital than the more traditional institutional
funding route, this segment opens attractive investment
avenues for a suave investor.
Real
Estate investments that are traditionally driven by individual
initiatives are now being packaged as a standard financial product by realty
funds. No more botherations to fix bathrooms in
leased out flats; no more fears of encroachment on lands, all
you will possess now is a "statementof accounts" with no maintenance to
maximize value.
By
virtue of providing an organized and sustained
source of funds with relevant sect oral expertise to a hitherto unorganized
market in India, funds will captain the growth of real estate industry inits lifecycle to maturity, fromthe present stage of infancy.
Any
individual who would have dabbled with real estate would vouch for
the inconvenience of title search of land. He would have certainly come across
unscrupulous developers who seldom deliver even after being paid. Suchsituationsget addressedwith a real estate fund at the helm, as they join handswithdevelopersof repute with a clear track record ascertained by stringentduediligence.
Funds go
a step ahead in making developers out of investors. As a fund, the
investments in any project are at infancy during early stages of the project. The fund
investors collaborate with
the developers/land owners from inception to completion of the project. This ensures thattheaverage returns in real estatedevelopment are atparwiththe returns that a developerwould earn,which canbe attractive on an annuliasedbasis.
Funds come with an inherent
understanding of the business which helps them to identify sect
oral gaps in the broader real estate development
of any city. This results in more focused deployment avenues which on
the one hand maximize returns for investors and on the other help in the holistic
development of cities.
The
downside in these transactions is also minimized on account of entry at land stage which
itself has inherent value equivalent
to the investment without discounting future earning
potential. Further, atypicalinvestment bya fund offers the potential forstaggeredinvestmentsatland acquisition stageof the project and leveragingat theconstructionphase. The net impact of staggered payments and leveraging is a
substantially lower equity infusion in projects and hence results in a higher return
on equity for the funds and for
its investors. And all this, without any
speculations on future pnces.
Further, given
the spread of investments made possible with the higher investment
corpus created from a pool of investors, the fund
capitalizes on both the early mover advantage
across various geographies and segments as well as reaps the benefits of economies
of scale in the implementation/construction stage of its various investments
projects. The added benefitsof holding real estate companies to reach as size suitablefor listing provides a huge windfall in the stock markets to enhance theearnings from the business itself is a virtue that comes with investmentsthrough real estate funds.
Real
Estate is a versatile investment instrument where
one can expect capital appreciation in the medium to long term coupled with the
potential to earn sustained dividend yields on a sustainable basis.
In
essence, real estate venture capital funds help to reduce the risk profile of
real estate investments by offering diversified investment portfolio managed by experienced
fund managers thereby providing dual benefits of a defensive investment
alternative compared to direct real estate
investments anda hedge mechanism to equity market exposuresby offering an alternativeasset.
The over-supply scenario
that 2008 had witnessed in the commercial
real estate space could well continue
in 2009, says the annual yearend
report by Cushman & Wakefield, real
estate services firm.
While some
companies, which had committed to larger
spaces earlier, have scaled down their absorption as a
prudent step to mitigate the cost on real estate. Others, which had taken up spacebased on anticipated expansion plans, are considering sub-leasingthe excess space.
"With
this trend continuing coupled with the proposed
additional supply and the already existing increasing vacancy levels, the
overall supply situation is likely to
see no early respite. Hence, rental corrections across micro-markets
seem probable over the short term," saysMr KaustuvRoy, Director of Tenant Strategies and Solution at Cushman&Wakefield.
The
south, central and select suburban locations of Mumbai witnessed rental
correction over a year and more recently, Thane
Belapur Road (IT) and Malad (non-IT) too recorded a southward movement. Vashiand the non IT projects in Thane Belapur Road recorded a stable trend. Central
and Suburban locations of Lower Parel, Bandra
Kurla, Andheri and Powai are likely to
witness a further fall in rentals with
all other major markets expected to stabilize.
In
Bangalore, the rental market continued to strengthen recording 4-9 per cent
annual appreciation in the peripheral locations and nearly 18 per cent year-on-year growth in the CBD
and off CBD regions. Outer Ring Roadand the suburban areas are likely to strength en furtherin the coming months, whereas ITPL, Whitefield andElectronics City are expected to stabilize, says the report.
Chennai witnessed a drop of 5- 10
per cent in rental in the CBD and off-CBD locations of T.Nagar, Alwarpet, Anna Salai and Radhakrishan
Salai, while the suburbanand peripheral regions witnessed a 7 -9 per cent drop.
Rajiv Gandhi Salai in
the peripheries is the only market in the city that has begun to show signs of stabilization and is likely to
continue with the trend as all other major micro markets are anticipated
to record a furtherfall in rentals, adds the report.
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