RENTING OUT COMMERCIAL SPACES MOSTPROFITABLE
Nowadays,
Real estate funds are turning towards rental yield assets for investment. The
major advantages are the lower risk and regular income associated with such
property compared with new developments. At least four real estate funds are
raising money about Rs.2,000 crore to invest in rental yield assets.
Interest in
rental yield assets has also increased as there is now a substantial stock of
property with high specifications that was established in the past three to
four years.
Amit Goenka,
National Director, Capital Transactions, Knight Frank India Pvt. Ltd., said
that it is the first time so many rental yield-focused funds are there in the
market. He further said that this trend definitely indicates a shift in the
model of investment from development, such as residential projects, to
developed commercial space that has been
completed and rented out. In mature Asia-Pacific markets, 70% of transactions
are for acquiring existing yield properties.
J M Financial
Property Fund, the real estate fund of JM Financial Ltd., managed by Infinite
India Investment Management,. is aiming to raise a Rs.400 - 500 crore rental
yield fund known as J M Financial Real Estate InCome Fund from domestic
investors. The fund has already registered with the regulator. Securities and
Exchange Board of India, or Sebi. R K Narayan, Director. Infinite India had
said that they are planning to raise the fund from high net- worth individuals
and domestic institutions over the next couple of quarters.
Anand Rathi
Financial Services Ltd. is raising a Rs.250 crore rental yield fund along with
real estate consultancy firm Knight Frank_ After deploying up to 75% of this
money, they plan to raise a S 200 million offshore fund.
Indiareit
Fund Advisors Pvt Ltd the real estate fund promoted by Piramal group Chairman
Ajax Piramal, plans to raise around Rs.1,350 crore in a debt fund a rental
yield fund this year.
LIC Housing
Finance Asset Management Co., a unit of LIC Housing Finance Ltd., is planning
to raise a Rs.500 - 750 crore real estate fund which will invest in rental
yield and other assets within real estate. A top LIC Housing Finance official,
who did not want to be named, said that they are tying up with different
domestic institutional investors and financial institutions. They had
registered with Sebi and are likely to launch it by June this year.
Consequent
to the slump of 2008-09, returns from development projects have generally been
lower than expected because of market conditions. The delays occasioned partly
by that slowdown, have eroded the internal rate of returns too.
Rental yield
investments have done better. Earlier this month. Kotak Realty Fund sold its
stake in Peepul Tree Properties Pvt. Ltd, an information technology park, to
Tata Realty and Infrastructure Ltd, for Rs.385 crore, making a fourfold return.
Kotak had invested Rs.95 crore in 2006.
Anuj Puri,
Chairman and Country Head, Jones Lang LaSalle India, referring to issues such
as land acquisition said that Private equity firms are drawn to stabilized
assets as they do not carry development risks, which are becoming increasingly
difficult to underwrite, given the political flux.
It has been
estimated that the demand for office space in India over the next five years 2010-14,
will be at an approximate 240 million sq.ft. The National Capital Region that
is Delhi and its suburbs, Mumbai and Bangalore will account for 46% of this
demand, according to the 2010 Cushman and Wakefield India Real Estate
Investment Report.
Narayan of
Infinite India opined that for developers, this is a good alternative source
for funding and to monetize their assets because real estate mutual funds have
not taken off yet and real estate investment trusts have been a non-starter in
India or for Indian developers. Real estate mutual funds invest in property,
either directly or indirectly.
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