Realty PE fund raising, investments witnessing focus in asset classes, says JLL India

MUMBAI: Private equity firms' fund raising and investment in real estate sector is witnessing rising focus in assets classes like residential segment, unlike the earlier modus operandi of raising diversified funds, said property consultant JLL India. 

www.sevagiri.com

"There has been a clear increase of focus among investors about where they want to invest their funds in. During 2007-08, investors left no stone unturned to participate in India's economy and real estate growth story, and invested across all possible asset classes," said Anuj Puri, Chairman & Country Head, JLL India. 

"In the same period, 66% of funds were diversified. The share of such funds has reduced to negligible levels, post-2014. In contrast, residential-focused funds have increased to 85% today from the then measly figure of 14%." 

According to Puri, these two trends show that the investment approach of investors has changed from weighing every asset class on the opportunity it presented to becoming residential-focused, as this asset class has given maximum returns over the years. 

From 2014, Indian real estate has witnessed private equity investments worth $2.2 billion and this is even before taking into consideration the platform level deals worth $2 billion. "When we compare the quantum of activities in last 18 months to investments between 2009 and 2013 that were worth USD 3.9 billion, this uptick is clearly evident. Per year investment has increased by two times," JLL India said in a report. 

Apart from partnering less number of developers, investors are also focusing on fewer property markets now. In 2007-08, investors went out to close to 30 cities for deals and are now focusing on top five to eight cities. 

Between 2005 and 2008, investments were not only seen across all realty asset classes but investors also invested in Tier-II and Tier-III cities. As many as 30 Indian cities enjoyed investment during this phase. Post this phase, however, the selection criteria has gotten stricter and due diligence has increased - displaying a maturing of India's real estate PE industry. 
 

Source - ET

Canada Pension Fund Ready to Invest $2 Bn in Mumbai Housing: Maharashtra Chief Minister

Mumbai: Canada's pension fund is ready to invest $2 billion (Rs 13,000 crore at $1 = Rs 65) in affordable housing in Mumbai, Maharashtra Chief Minister Devendra Fadnavis said, in a move that would boost Prime Minister Narendra Modi's goal of providing cheap housing to millions of people.

www.sevagiri.com

"A week back, the Canadian ambassador... informed me that the Canadian pension fund is ready to invest $2 billion in Mumbai for affordable housing," Mr Fadnavis told reporters.

The Canada Pension Plan Investment Board (CPPIB) opened an office in Mumbai this month and has already committed to invest more than $2 billion in India.

Source - NDTV 

Cash from hiked FSI will fund all Metro projects

Mumbai - The proposed consolidated public transport fund will be used to finance all Metro projects across the Mumbai Metropolitan Region and chiefly in the city, said Nitin Kareer, principal secretary of the urban development department. There have been instances of money raised in Mumbai being used elsewhere earlier. MMRDA funds raised from the sale of land in BKC though meant exclusively for Mumbai's development have been in the past diverted elsewhere, including to pay cotton farmers.

www.sevagiri.com

The fund is to be set up through money obtained as premium for additional floor space index (FSI). The state government has decided to charge 100% premium for development of properties on either side of the Metro route up to 500 metres. This will be applicable for the Dahisar-Mankhurd-Bandra-Dahisar-Andheri route (Metro II), the Andheri-East-Dahisar East route (Metro VII) and the Colaba-BKC-Seepz Andheri (Metro III) route. The area along the Versova-Andheri-Ghatkopar (Metro I) is not likely to be included. 

The MMRDA, which is headed by the chief minister, will handle the fund. Currently, BMC charges 60% as premium for additional FSI. The 40% premium that will come on account of this decision will be deposited in the consolidated fund. "The money will be mainly used for executing the Metro projects but also for other transport infrastructure chiefly in Mumbai," he said.

The state's decision to increase premium on additional FSI is in line with the draft Development Plan for the city. The draft, which is being revised, has proposed higher FSI at transit nodes. Termed as 'Transit-Oriented Development', the area around railway stations and Metro routes will have an FSI going up to 8.

Source - TOI

Debt funds fail to deliver interest payments as real estate languishes

MUMBAI:It's a wager gone terribly wrong. Rich savvy investors, who invested in real estate debt funds expecting higher yields and capital protection, are spending sleepless nights as they have not been receiving regular interest payments over the past year. Some of these investments may go down the sewer unless there is an immediate uptick in property sales and a resultant revival in the real estate sector, wealth managers and analysts opine. 

Ballpark estimates suggest that almost half of the 50-odd real estate funds - which provide mezzanine funding to developers - have turned irregular in their interest payments, which on a normal course are paid every quarter or in two instalments every year. 

"Some of the NCD issuers - and real estate funds that have invested in NCDs - are seeing delays in interest payments and probable defaults," said Prateek Pant, executive director - products & services, RBS Private Banking. 

"There's clearly a lot of liquidity stress in the real estate market. HNIs who have direct investments in NCDs are now grappling with irregular interest payments," Pan added. 

www.sevagiri.com

Payment delays apart, several funds have also marked down coupon rates and extended principal repayment schedules by almost 12 to 24 months. Most funds have a one-year moratorium immediately after the launch, during which period it is not obliged to make any pay-backs. From the second year onwards, funds start repaying interests every quarter, along with some principal amount. As the years progress, the portion of principal repayment goes up. 

"A handful of debt oriented RE funds has also faced delayed payments from builders and exits have been slower than estimated impacting investor returns," said Sriram Iyer, CEO of Religare Wealth Management. 
"While all of this lending is backed by collateral in the form of land or building and in some cases, personal guarantees, funds have not resorted to liquidation of collateral which in itself may not be an easy option to exercise," Iyer added. 

It's not only small funds, but a few from larger pools — managed by the likes of HDFC, Birla Sunlife, JM, ICICI Pru, Kotak, IIFL, Edelweiss, Indiabulls, DHFL, ASK Group and Edelweiss — have also tweaked payment schedules, sources said. 

"The smaller funds - with asset exposure in the range of Rs 50 - 100 crore - are staring at payout stress," said Shouvik Purkayastha, MD - capital markets group, Cushman & Wakefield. "Some have frozen their coupons because of low cash-flows. But unless there's an actual default, there's good probability of money coming back to investors, albeit a bit delayed and a bit lower returns than promised by these funds," Purkayastha added. 

Real estate funds moved on from being pure equity play (where they participated in projects) to mezzanine debt funding a few years ago as yields hovered between 18 and 24 per cent per annum. To secure their money, funds gathered 2 - 4 times collateral and tagged along 'desra' clauses which took care of immediate payout to investors. Long term payouts, however, are dependent on developer cash flows. 

ndia's real estate sector has been witnessing weakness in sales momentum, rising inventory and debt levels for the past three years. As per the latest data, unsold housing stock across top eight property markets in the country rose 18 per cent to over 1.1 billion sq ft as on June 30. Barring Hyderabad, all other cities have shown a rise in the unsold inventory, with Bengaluru showing maximum increase of 55 per cent compared to a year ago.

 
Though the growth in unsold stock in the National Capital Region has been just 7 per cent, the region tops the chart with 326 million sq ft, followed by Mumbai Metropolitan Region at 201 million sq ft. Last month, Moody's Investors Service said that India's bigger property developers will continue to face a challenging operating environment including weak cash flows, flat sales and stagnant prices over the next one year. 

"The whole concept of structured debt, even though it offers some protection, is not as secured as bank funding," said Sumeet Abrol, Partner, Grant Thornton India, adding, "these are debt-like products; but not as secured as classic debt. The whole pay-out in structured debt funding is dependent on cash-flows of the project." 

According to analysts, funds deployed between 2010 and 2012 are phasing through a lot of stress. Project cash-flows have also declined significantly as there's limited consumer interest at the aggregate industry level, analysts opine. 

"While commercial real estate is showing some improvement mainly because of low supply, residential property sales velocity has fallen sharply. This is impacting payouts of most mezzanine funds," Abrol added. 

It's not only real estate debt funds, but also rental yield funds that are facing sectoral headwinds. Tepid demand for commercial real estate has flattened rental yields; several funds operating in this space have not exercised escalation clauses which allow them to charge a higher rent after a specific time-period. Rental yield funds are returning 7 - 9 per cent PA - about 11 - 13 per cent lower than the promised yields. 

"Overall performance of rental yield funds has been sub-par," said Atul Singh, MD & CEO, India of Julius Baer. But rather than reducing prices outright to drive sales volumes, developers are modifying products configuration and offering incentives to prop up sales momentum. 

Source - ET

Sidbi plans 2,000-crore fund-of-funds for startups

MUMBAI: The Small Industries Development Bank of India (Sidbi) on Tuesday said it has set aside Rs 2,000 crore for a fund-of-funds to pick-up equity in startups under the Rs 10,000-crore corpus announced in %the budget. 

www.sevagiri.com

Sidbi will use a part the remaining Rs 8,000 crore of the budgetary allocation to extend soft loans to micro, small and medium units at concessional rates, Sidbi CMD Kshatrapati Shivaji told reporters here. "We will be utilising a part of the money allocated in the Budget for a fund-of-funds which will take equity interest in startup enterprises while the rest (Rs 8,000 crore) will be for soft and term loans," Shivaji said. 

The contribution towards the fund of funds will be around Rs 2,000 crore, he said, but didn't give exact details of the amount to be devoted for lending or the number of beneficiaries. The lending will be done to companies which are taking the 'Make in India' initiative ahead, he said, adding the lending scheme has been given the acronym 'SMILE' which centres around lending to small units. 

On April 30, Parliament was informed that the RBI had allocated Rs 10,000 crore to Sidbi to set up a venture capital fund to attract private capital for startups, which was first announced in the budget. "The whole fund is operational now. In the fund of funds, already screening process has started, and a six-member venture capital investment committee which includes Mohandas Pai has been set up," he said. 

The Budget had announced the setting up of the Mudra Bank, which is under Sidbi and aimed at refinancing the debt of micro-enterprises. Shivaji, who also heads Mudra Bank, said there is no issue of over-lap between the two institutions - Sidbi and Mudra Bank. 

"We will not be competing. In fact, they will be playing a complementary role to us," he said, adding given the large number of micro enterprises, there is a need to develop the entire ecosystem which will support to such companies. 

Mudra Bank has already given out over 5,000 'Mudra cards' to beneficiary enterprises and over Rs 120 crore has been refinanced," he said. 

The bank is mulling to raise funds through bond sales, Shivaji said, adding the Rs 20,000-crore initial corpus can be leveraged to raise the money. The leverage can be of up to 10 times of the Rs 20,000 crore, he said, but declined details. Mudra Bank will be soon announcing the initiative, he added.

Source - TOI