The BSE Realty Index hovers about 15 per cent above its 52-week low of 1893 in February. Property prices across most cities have peaked and market pundits say there is no other way but for prices to correct, though it would be location specific.
Against a backdrop of such poor sentiment on real estate, fund managers such as ASK Property Investment Advisors sight funding opportunities in the property market.
ASK has completed the initial closure of Rs 520 crore of its second real estate fund of Rs 1,000 crore and is moving ahead with the green shoe option for Rs 480 crore.
ASK has committed 80 per cent of its first fund of Rs 330 crore and the investments made have offered 11.5 per cent gross returns of Rs 6 crore thus far. Its Rs 50-crore investment in Noida has near 50 per cent bookings, alongside an appreciation of 1.8 times.
The fund advisors are looking for bigger ticket size projects of Rs 75-125 crore for ploughing the Rs 520 crore mobilised in second fund.
The Rs 330-crore fund had a ticket size of Rs 25 lakh with high net worth individuals subscribing to it. The first phase of the second fund dovetailed the first with HNIs investments averaging Rs 92 lakh each.
“Traditionally, HNIs have been lending to the sector on assured returns. However, in the current scenario they are not sure of the returns with the volatility and prefer entrusting their money to competent hands,” said Mr Sunil Rohokale, Executive Director, ASK Investment Holdings.
The target is the mid residential segment varying between Rs 50 lakh and Rs 1.5 crore, he said. Current investments are in Noida, Pune and Chennai.
Mumbai has been put on hold, as property prices and developer practices apparently do not align with the fund's objectives.
Brushing aside, the negatives such as high interest rates for developers as also the home loan rates which have hit double digits, besides the hike in home borrower margin of 20 per cent demanded by lenders, Mr Amit Bhagat, CEO and Managing Director, ASK Property Investment Advisors, said the current impasse is an opportunity for prudent funding with targeted returns of over 25 per cent for investors.
There is immense opportunity for private equity managed development with willing developers who were keen to go ahead with ring fenced participation by a PE player.
On management, he said, ideally, ASK entered at the initial stage with funding of 26 per cent to 51 per cent. Given the nature of residential projects, where accruals flow in on bookings, about 15 per cent set aside for working capital would pull the project through, provided schedules are maintained and no capital diversion permitted. Anything above the requirements, were siphoned away for investors.
Asset management, risk management and prudent developer selection were the key to success, he said.
On partner selection, the criteria was 15 years in the field, must have delivered at least 2 million sq.ft, besides having in-house construction management capabilities. The developer must have received funds from HDFC or ICICI for construction finance for earlier projects as the two lenders' risk management were superior than most. In addition, he must be accessible 24X7. Last, but not the least, his vendors must speak well of him.