The article got published on MagicBricks.Com, and can be accessed at: here.
Wished to ride the real estate wave for harvesting better returns but
have been put off by high real estate prices in India? Introduction of
Real Estate Investment Trusts (REITs) in India could open up new avenues
for you.
Traditionally, an investor intending to venture into real estate would scout for the best residential or commercial properties with an intention of growth or regular income from the real estate investment.
For
majority of investors, rising real estate prices have put them out of
the market. This adds on to the fact that the investment would also be
limited to one or two properties,
and thus in this case a ‘Real Estate Portfolio Management’ can not be
executed in the truest sense. On the other hand, consider the case where
you have invested in a real estate project in Noida, and the land on
which the project is being constructed comes under dispute between
landowners and builders (like the case in Noida extension). With Real
Estate Funds, your investment is not placed into one single project and
hence your investment basket is protected.
There is a silver
lining amid these high real estate costs. The answer lies in Real Estate
Mutual Funds (ReMFs), ReITs and Real Estate PE (Private Equity) funds.
The real estate investment scenario got a drastic change with the sector
getting opened for Foreign Direct Investment (FDI) in 2005.
While
ReITs & ReMFs will take some time to get structured in India, Real
Estate PE funds have already made their way in the said space. Some of
the funds active in the market include Tata Realty and Infrastructure,
Indiareit Fund Advisors, HDFC Real Estate Fund, ICICI Venture; ASK
Property Investment Advisors, ArthVeda STAR Fund from DHFL and Kotak
Realty Fund.
What are ReMFs and ReITs, and what differentiates one from the other?
ReITs are popular and prevalent in developed markets. They are listed on stock exchanges and governed by transparent norms. ReMFs invest in commercial properties and own them. They make gains by renting out or selling their holdings; like mutual funds and share profits with investors.
ReITs are popular and prevalent in developed markets. They are listed on stock exchanges and governed by transparent norms. ReMFs invest in commercial properties and own them. They make gains by renting out or selling their holdings; like mutual funds and share profits with investors.
Real
estate PE funds are, however, different. These funds invest in real
estate projects by tying up with the developer, wherein the developer
sells a portion of the project to the fund. Some funds tie up with
companies also. These funds are primarily for HNIs, for real estate
investment purposes.
The PE advantage: PE takes care of all the due diligence required for selecting the properties
to invest into; and there is a specialised team that does the
valuation, assessment and screening before investments can be committed
to the project. Moreover, investors’ amount is spread out over multiple properties, so that diversification plays out well over here.
Rajat Dhar, Managing Partner, Cogent Advisory
The article got published on MagicBricks.Com, and can be accessed at: here.
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