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The Future Of Private Equity Investors In Real Estate Market and their Relationship with Real Estate Developers

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The Future Of Private Equity Investors In Real Estate Market and their Relationship with Real Estate Developers

The Real Estate (Regulation and Development) Act, 2016, RERA has tightened many loop holes in the real estate sector. The repercussions can be seen not only amongst the real estate developers but also in their prime source of funding, private equity investors.  RERA is great move to safeguard the interest of home buyers against inconveniences such as possession delays and other ill practices prevalent in the real estate sector. But on the other hand, it will also influence the relationship between Real Estate Developers and Private Equity Investors.

Read: RERA Likely To Be Incorporated In Maharashtra from 1st May, 2017

Private equity contributes a major portion of investment in the Indian real estate sector. It constitutes as much as 60% of total investment of institutional funding requisite in India’s real estate sector, as per reports published by property consultant Knight Frank in 2017. It has surpassed bank credit, which was the major source of funding earlier. Figures suggest that bank credit used to contribute around 50-57% of institutional funding in the Indian real estate sector in 2014. But it has significantly dropped down to almost 24-26% in last couple of years, which makes private equity the main contributor of funds.

Private equity investors have huge influence on developers in terms of allocation of capital since they are the chief funders. But after implementation of RERA by central government last year; and individual states adapting the same, the situation has changed a lot and will continue to change. Most of the states are expected to finalize the rules by beginning of May. Once it comes into full effect, it will prompt changes in the current terms between real estate developers and private equity investors. It will impact three major key areas according to experts, which are as follows:

  1. Returns on Investment

RERA has made it mandatory for promoters to deposit 70% of the received amount from allotted parties into a separate account. The amount can be utilized only to cover construction and land cost as per the act. The state will decide the amount to be considered as construction cost. Different state might have different norms in this regard. Most of the earlier agreements between private equity and developers had veto rights which required developers to repay the investors first from whatever cash flow comes in. Such vetoes are now bound to change after the implementation of the act, as the developers main concern would be timely delivery of projects.

The repayment to investors will be higher as it will take more time since main focus would be on timely project completion. However, RERA experts have indicated that the act will also benefit private equity investors. The default rates will drop as the projects cannot be marketed unless all relevant approvals are in place including commencement certificate. So, it reduces the risk of fund diversion by the developer. The private equity investors are not in a completely disadvantageous situation but it all depends how well the new law is implemented. Since the act has a conflict of interest between buyers and investors, time will decide who will benefit the most out of it.

  1. The Investor –cum- Developer scenario

RERA has redefined the role of promoters. The Act defines that the person who constructs or develops the buildings and the one who sells it are two different entities, so both of them cannot be considered promoters. A lot of private equity investors like to take the role of investor-cum-developer so that they can have more control over the project.  The question arises whether they will be considered as promoter or not? If they are, then the entire responsibility of the project will also fall on their shoulder. Then it also raises the question that under whose name the marketing and selling will take place, the developer or the investor?

These have led to the addition of new laws under the act, currently under consideration. It’s being made very clear that under no circumstances a project can be marketed under investors neither they can be presented as developer or promoter. If you market a project in the name of some reputed investor then it attracts more sales. But under RERA, they will be considered as promoters, so it might not be a good thing to do, as it might lead to some legal obligations. If the private equity investor qualifies as a promoter, then they will have to take all responsibilities starting from registration to penalties in case of a default.

  1. The current rights included in private equity agreements.

About $32 billion in private equity has been invested in the Indian real estate sector since 2005. In 2016, as much as $5.7 billion in private equity was invested in the real estate sector making it the second highest investment. Such huge investments also grant certain rights to private equity investors, especially foreign investors, who demand for it. For instance, if the developer defaults then the private equity investor has the right to act as a developer or appoint some third party developer to look after the project. But after RERA, this may not be the case as such change will require the approval of two-thirds of the allotted party and Real Estate Regulatory Authority.

Since the act will revoke the step-in-right, so it will be really difficult for private equity investors to take over the project if the developer defaults. Instead, they will have to work with allotted party to complete the project. So, as a private equity investor you have to make sure that you work with developers who have a solid brand reputation and have the capability to complete a project in an efficient manner.

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Square Capital Becomes The Largest Organized Distributor Of Secured Mortgages In India

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Square Capital Becomes The Largest Organized Distributor Of Secured Mortgages In India

Square Capital, the digital lending arm of India’s largest real estate transaction platform Square Yards has underlined its market dominance by becoming the largest organized distributor of secured mortgages in the country. It is currently facilitating USD 30- 40Mn (INR 200cr – INR 260cr) of loan disbursals every month, contributed majorly by secured mortgages spread across 50+ banking partners for their different products in home loan, home against property and business loan. Its impressive growth is attributed to the rise in availability of affordable housing in India as well as the increasing consumer propensity to rely on fintech platforms for a full spectrum of financial needs.

Speaking on the recent numbers, Amit Prakash Singh, Principal Partner, Square Capital said Real estate and fintech aggregation are a synergistic match to a vast degree and Square Capital, was able to build on the established best practices of Square Yards to become one of the largest mortgage distributors in India today. We are betting big on affordable housing to drive future growth, particularly with the Pradhan Mantri Awas Yojana offering interest subsidies and of course, the huge number of untapped first-time home buyers that can be catered to in the home loan segment up to Rs. 30 lakh.

Government schemes such as the Pradhan Mantri Awas Yojna which offers interest subsidy between 3-6.5% for loans between Rs.6-12 lakh for EWS and LIG categories and subsidy of 4% and 3% for loans of Rs.9 lakh (for those with income up to Rs.12 lakh annually) and Rs.12 lakh (for those with income up to Rs.18 lakh annually) respectively, are driving consumers to opt for home loans that they can repay easily and fulfill their dream of real estate ownership. In fact, several studies have shown that loans have gone up by more than 20% over the last few years for affordable housing purchases. Square Capital is optimizing this opportunity to the hilt by enabling easier access to credit for potential home owners.

In the absence of any national-level mortgage distributor that has managed to scale up over the last decade, Square Capital has not only been able to generate massive digital leads but is also enabling fulfilment, either digitally or through its hybrid online to offline (O2O) approach.

About Square Capital

Square Capital is a marketplace lending platform that aggregates offers from financial institutions on a single platform and provides end to end fulfilment support in the lending process that includes assessing the credit worthiness/risk of clients, helping them choose the right product from the appropriate lending organization, managing their documentation, advising on professional issues pertaining to taxation & insurance and assisting the client till the entire lifecycle of loan disbursement.

Also Read: Under The First MahaRERA Verdict, Builder To Return Rs.26 Lakhs To Buyer

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ASK Group and TVS Emerald Join Hands To Setup Rs 400 Crore Real Estate Investment Platform

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ASK Group and TVS Emerald Join Hands To Setup Rs 400 Crore Real Estate Investment Platform

ASK Group’s Property Investment Advisors, the real estate equity arm, and TVS Motor Company’s real estate wing Emerald Haven Realty Limited (TVS Emerald) have decided to set up Rs 400 crore real estate investment platform.

The raised capital will be spent on several affordable mid-segment projects.

“We strongly believe that affordable and mid- segment market offers huge growth potential and this is in sync with the TVS Emerald’s core purpose of providing better living space to the urban middle class,” said Amit Bhagat, MD & CEO ASK PIA.

“Our endeavour is always to delight customer by fulfilling the aspiration of the urban middle class in their quest for a better living space,” said R. Chandramouli, President, and CEO, TVS Emerald.

The first investment under their partnership will be of developing a 10-acre land parcel having 5,48,000 sq ft of saleable area. It will have an equity investment of Rs 83 crore in Porur, Chennai.

Sunil Rohokale, MD & CEO, ASK Group said, “This platform is poised to get benefited in the heightened regulatory regime of RERA through focus execution and satisfying customer needs.”

Also Read: Chandigarh Brokers Yet To Register Under RERA

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ANAROCK Property Consultants Acquires LJ Hooker’s Indian Operations – Redwoods

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ANAROCK Property Consultants Acquires LJ Hooker’s Indian Operations – Redwoods

Strategic acquisition to boost ANAROCK’s capability in integrated real estate solutions, dedicated design center in Bangalore

Bangalore, August 30, 2017 – Consistent with its focus on becoming India’s leading residential real estate solutions company, ANAROCK Property Consultants Pvt. Ltd. has announced the acquisition of Redwoods, the Indian arm of LJ Hooker, based out of Bangalore. The acquisition was closed today, with ANAROCK absorbing all Redwoods employees.

Anuj Puri, Chairman – ANAROCK Property Consultants says, “The acquisition of LJ Hooker’s Redwoods is in line to our overall business strategy and will help us augment our operations across key southern markets. It will give us unparalleled competitive advantage in offering customized real estate solutions. With its strong presence and unique multi-pronged approach, ANAROCK is decoding unmatched value for both B2B and B2C clients.”

ANAROCK Property Consultants is already redefining the residential real estate services sector in India by offering integrated solutions through a hybrid model of online and offline convergence. The company launched its operations under its flagship brand name of ANAROCK in June 2017 and is well on its way to cross INR 100 crores of revenues for 2017 calendar year. The firm has aggressive plans to achieve INR 250 crores of revenues in 2018.

With a growing team of over 750 professionals, ANAROCK aims to cross 1000 in employee strength by the end of 2017. The company currently operates in all key property markets across India – Mumbai, Chennai, Bangalore, Gurgaon, Noida, Hyderabad, Kolkata AND Pune, with an international presence in Dubai.

About ANAROCK Property Consultants Pvt. Ltd.:

ANAROCK Property Consultants Pvt. Ltd. is one of India’s leading real estate services company having diversified interest across real estate value chain. Anuj Puri, ANAROCK Group Chairman, is an acknowledged thought leader in the Indian real estate industry and numbers among the most established expert on India’s real estate opportunities, both in India and across the globe. With a career spanning over 27 years, Anuj Puri was the former Chairman & Country Head of international property consultancy JLL India.

The ANAROCK Group’s key strategic business units comprise of residential broking and advisory services to clients, investment services, debt, equity and mezzanine funding, and research and consulting. ANAROCK’s residential team consists of the industry’s finest residential real estate professionals who understand the ever-changing consumer needs and market trends.

With its vast experience and expertise in serving the most reputed developers, corporate houses, portfolio investors and individual investors makes ANAROCK India’s pre-eminent residential real estate services firm. The company’s investment arm has built a revolutionary business model of bulk-purchasing residential apartment inventory through a proprietary investment fund. For further information, please visit www.anarock.com

About LJ Hooker:

Established in 1928 by Sir Leslie Joseph Hooker, LJ Hooker has grown to become Australasia’s best-known real estate brand (Galaxy BrandTrack 2015). It is one of the largest residential and commercial sales and property management organizations in the industry with more than 8,000 sales professionals, property managers and support team members in 730 franchised offices.

LJ Hooker has an exciting and impressive heritage of innovation, perseverance and bold decision-making. The company’s strong people-focused culture was established and defined by its founding visionary: Leslie Joseph ‘LJ’ Hooker in 1928. A constant innovator, entrepreneur and devotee of best practices, he changed the way real estate business was conducted in Australia. Today, LJ Hooker is Australia’s best known real estate brand.

About Redwoods Projects Pvt. Ltd.

Established in 2006 with the philosophy of providing customized real estate solutions to clients, Redwoods has expertise in fund management, deal structuring, fund syndication, joint developments and unique transactions. With over 25 million sq.ft. of leasing experience across all major markets, Redwoods have nurtured long-standing relationships with all major developers across India.

Redwoods partnered with BNP Paribas Real Estate in 2008 to jointly provide real estate services in India. The company successfully exited the Joint Venture in 2010 after establishing a successful realty arm in BNP Paribas.

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