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.
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 in; and there is a specialized 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, Finogent Advisory