According to a recent report by CBRE, capital inflows in India’s real estate in the first half of 2022 stood at $3.4 billion, showing a 42% increase on a half-yearly basis. This also amounts for 4% growth on an annual basis. Enthused by the robust recovery India’s real estate sector has achieved in the post-pandemic period, especially in contrast with other asset classes, institutional investor-led investment activity is seen gaining momentum.

In fact, buoyant on this upwards trend, several home-grown companies have come forward to set up real estate-funding centric platforms in the past few months, joining the league of global private equity giants. Recently, Eldeco group announced a partnership with HDFC Capital to set up a Rs 350-crore fund to develop residential projects across many cities. CREDAI and Venture Catalysts have also partnered to set up a $100-million PropTech fund.

What does this tell us about real estate funding? How does this present itself as a prospect of high potential for high-net-worth individuals (HNIs)?

The premise

Better affordability led by the pandemic-induced buyer confidence in real estate is expected to boost the already improved market dynamics, making real estate one of the fastest-growing asset classes in the country. This presents itself as a golden opportunity for HNIs looking for more stable long-term stable investment. Before we move forward, it is pertinent to understand what real estate private equity funds are, and how they operate.

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What are real estate-centric funds?

Real estate funds invest in securities of companies from the sector. The job of a fund is to provide capital to select developers for chosen housing projects. Growth of the fund depends on the performance of the project in which the fund has invested. Needless to mention then, that funds invest a great deal of time and due diligence to make this highly crucial decision.

Individual projects versus real estate-centric funds: Which one is better?

Now the question arises, which is the more profitable path to grow your money in real estate investment—

Individual housing projects or real estate-centric investment funds?

Highly diverse and flexible, real estate funds provide an investor with an opportunity to grow his wealth in real estate without actually buying a property, and in that sense offer a liquid method to be present in a market dealing with illiquid assets.

As they say, putting your money in just one basket is not a safe way to go. The same logic applies to individual residential real estate projects, where the chances of growth are often limited. To be a part of a bigger investment, investing in real estate-centric funds is advisable for a variety of reasons.

Higher potential to grow: Real estate funds invest in chosen high-potential projects after doing due diligence. That way, your investment and its growth capacity are any day much higher than investing in a single project, where the odds of things going south are as equal as them going north. Also, putting your money in multiple projects through a high-performing real estate fund is going to be a lot more monetarily beneficial than sticking with a single entity.

More secure option: Another benefit of associating with a real estate fund housing is the comparative investment security they offer. Meant for the long run, real estate funds offer you better long-term rewards.

They are also more secure in the sense that they follow a standardized structural framework, built following all the necessary regulatory procedures. In that sense, you don’t run the risk of your investment going down the drain because the developer has gone rogue or turned insolvent.

Things to keep in mind when selecting a fund

It is important to do your own due diligence when selecting a real estate fund for investment. Invest only in trusted names, with a good track record. Also note that making any investment in such funds is not recommended for investors looking for short-term returns.

(By Amit Goenka, MD and CEO at Nisus Finance)

Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.