High returns in rentals
market regulator Securities and Exchange Board of India has raised the minimum investment in PE funds to Rs 1 crore (from Rs 5 lakhs under venture capital funding regulations) under the Alternative Investment Funds (AIF) guidelines, which has significantly reduced the investor base for fund raising.
On the downstream part, lacking transparency in the sector and developers’ lacklustre effort in improving operational efficiency in the sector has not helped in institutionalising real estate financing. Some of the private equity investments have suffered due to information asymmetry prevalent in the real estate sector in India. This has reduced PE interest in the sector despite its huge long term growth potential.
These factors outlined above coupled with an increase in risk aversion among investors in the post global financial crisis era has shifted the focus from “opportunistic funds” to “value added” or “core plus” funds. Such funds offer moderate returns with low risks.
One such product is the rental yield fund, that offers an excellent opportunity for investors to get a fairly attractive rate of return with low risk. This is so on account of the following reasons:
The rental yield fund does not involve any development/ execution/ approval/ title risks.
A significant part of the overall returns are known at the time of acquisition in terms of net entry yield. Investors also get recurring income stream by way of distribution of rental income.
Investors realise that the yield fund holds title to the property hence there is a tangible asset backing the investment.
The
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