Indian real estate-focused private equity (PE) funds are hoping to raise around $1 billion from overseas investors, two people familiar with the matter said. Last year, realty funds managed to mop up close to $370 million from international markets, data from VCCEdge shows. Among the key realty funds that are in the market for money include Red Fort Capital, ASK Group, HDFC Property Fund and JP Morgan, these people said.
Many global investors who had shied away from investing in the Indian real estate market are beginning to show interest now that the new government is putting a lot of emphasis on housing for all. An estimated $700 million has come in so far in the calendar year; while HDFC Property Fund has completed a first tranche of $250 million, of its latest fund, earlier this month, the ASK Group had picked up a more modest $50 million in January.
Vikas Chimakurthy, director of Kotak Realty Fund, believes investors in funds, that are picking up stakes in commercial properties, are expecting returns of around 16%. “For residential projects the returns expectation is around 22%,” Chimakurthy told FE. Kotak Realty Fund closed an overseas fund in April, with $400 million in the kitty.
In the next round of fund-raising, Red Fort Capital is looking for $500 million to invest in commercial real estate projects while JPMorgan is believed to have a target of $250 million-$300 million by March end. That would be in addition to the $100 million that it is already believed to have got in 2013, industry sources indicated to FE.
If the proposed fund-raising materialises, it would be the first significant such exercise after a hiatus of four years. While a number of realty funds were looking to raise money overseas, they met with little success due to the ongoing uncertainty in the economic environment and the inability of existing funds to show returns to investors.
Moreover, exits were few and far between. Ambar Maheshwari, MD (corporate finance), JLL India, points out that several funds may announce exits from investments made five to seven years back. Profitable exits, he feels, will send out the right signals to investors. Sunil Rohokale, CEO and MD, ASK Group, told FE investments of up to $2 billion were exited in FY14. “We are hoping that number should be in the range of $3 billion-$4 billion this year,” Rohokale said.
Real estate projects, selling houses at a rate of Rs 4, 000-6,000 per sq ft, which can be classified as affordable housing, appear to be seeing good traction in sales and cash flows.
This could encourage some funds to exit, though the returns made on these investments are unlikely to be high. continued…