Indiareit Fund Advisors is all set to launch a rental yield fund with a corpus of R800 crore. Expected in early August, about R400 crore will be raised locally while the remaining amount will be mopped up overseas. ?The fund will only address investors who are risk averse. Since the income is derived purely from rentals and there is no purchase of land or execution involved, the risks are relatively lower,? Ramesh T Jogani, MD & CEO, Indiareit Fund Advisors, told FE. Indiareit is tapping high networth individuals (HNIs) for the domestic portion and non-resident Indians (NRIs) for the offshore piece.
A rental yield fund buys into assets, which have been completed and leased out and the lease rentals earned from the assets are distributed among the investors. Indiareit proposes to invest into AAA-rated properties in commercial, IT and SEZ segments and the life of the fund would be five years, he added.
Jogani expects pre-tax returns of around10%-11% on these investments, which will be distributed among the investors on an annual basis. ?The real play here is the regular income. Apart from this, investors will benefit if the asset appreciates,? he says adding that while assets could depreciate, prices for commercial property right now were relatively low.
Lower risk compared to investments made in new developments and regular income associated with such property are what attract fund houses towards rental yield funds.
?The investment is similar to that in a debt instrument. At the same time, there is the upside of an equity investment because as the rents climb, returns keep on improving. Also the underlying asset will appreciate with inflation,? explains Amit Goenka, national director (capital transactions), Knight Frank India.
Meanwhile, Indiareit is also looking at closing a new $500 million offshore fund by end 2011 or early 2012. ?There will also be another domestic fund in the range of R1,500 crore-2,000 crore by the next year,? said Jogani. The company had raised R925 crore till August last year and expects to exhaust the entire sum by beginning of next year, he added.