In order to invest in definitive and planned projects, largely with established developers, a number of real estate private equity funds, of late, have been setting up shops in the country.
But now, venture capital funds, seeing the sector?s growth, are providing seed capital to a corporate, which is planning to venture into real estate with or without any prior experience.
Foreign institutional investors (FIIs) and real estate funds are likely to bring in fresh investments to the tune of Rs 30,000 crore in the residential property market in tier-II cities by 2008. FIIs have already invested close to Rs 10,000 crore in the Indian real estate sector in the past two years.
The real estate sector has always been a ?prerogative? of family-run enterprises with a history in the field of construction. As the sector progressed, real estate equity funds started investing in these family-run enterprises. But today, even venture capitalists have started pumping money into real estate, especially in start-up companies.
Says Indiareit Fund Advisors? MD and CEO Ramesh Jogani, ?With real estate emerging as a veritable investment opportunity, these funds are long-term strategic players and not any fly-by-night operators. Further, the rapid growth of the real estate sector requires large capital infusion. With conventional lending sources, like the banks, still hesitant to support the developers in the land acquisition stages?it creates a veritable opportunity for the venture capital funds to come forward and supplement capital infusion at this stage and assist the industry to grow.?
Experts feel that factors such as consistent GDP growth of around 8%; controlled inflation; interest charges on a downward move; and burgeoning middle-class, with large disposable incomes supporting the sustained demand in various real estate asset classes, will be the catalysts to support large-scale urbanisation in the country. This would ensure a consistent flow of opportunities for venture capital funds in the sector.
Corroborates Prakash Gurbaxani, founder and CEO, QVC Realty, India?s first venture funded real estate company, which has an investment of $100 million from IL&FS, ?The way the real estate sector is growing in India today, investing in start-up companies which have a definitive action plan supports the growth of the sector as well as the overall economy. Since a fund conducts comprehensive due diligence before investing in any projects, this improves the transparency in the business chain?.
Also, since these funds are close-ended, they do not tend to speculate on various projects?thus reducing the speculation in this domain. The fund?owing to their expertise?can also bring immense value-add to each investee project. This, thus, encourages improvement in overall quality of real estate projects.