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.
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.