This May be a Landmark Year for Real Estate Funding!

Funding and its absence have been sore issues for the real estate sector all throughout the year 2013 and this has been one of the major problems faced by the sector. However, good news may be in store for developers and real estate conglomerates. There have been some policies and industry decisions that may just augur well for the sector at large. Big ticket funding is in store for the real estate sector in 2014. This will be a welcome development and may just prop up the sector in the context of a gloomy 2013 overall. Alongside, this money may come in as private equity or may even come in through the REIT or the Real Estate Investment Trust which is one of the biggest anticipated developments for the sector this year.

As per industry reports and other news, there are private equity funds like Tata Realty & Infrastructure, Xander, Kotak Realty Fund and Blackstone among others, who are readying the process of setting up REIT in India once the regulator for capital markets, comes up with the final instructions and guidelines for these securities. Tata, Kotak, Blackstone and Xander already have running investments in commercial assets and IT parks which produce rent. These can be perfect options for REIT assets. They would only have to float a REIT and list it on the stock exchanges which would ensure investment exits. As per a report from Morgan Stanley, India holds mall properties which are worth a staggering $60 billion or INR 3.72 lakh crores. Office space alone stands at 400 million square feet in India.

Tata Realty and Infrastructure which is owned by Tata Sons is already present as an advisor to the TRIF-I realty fund and will be exploring options with regard to setting up REIT’s both in India and Singapore over a specific period. The first ever fund from Tata, namely the Tata Realty Initiative Fund already possesses a $750 million corpus of its own with approximately 90 per stakes in all the mall projects undertaken in Nagpur, Amritsar and other cities by the conglomerate. Blackstone, which is based in the United States of America, has already been doing the background work for a similar REIT launch. It is one of the most consistent investors in India with close to $1 billion worth of investments in SEZ’s, IT parks and other commercial properties. These include investments in Embassy properties projects and the DLF Ackruti Info Parks situated in Pune.

Xander has a capital base of more than $2 billion in addition to residential buildings, retail malls and office spaces touching the 50 million square feet mark. The company is also looking at REIT and other investors like Everstone and IDFC are also looking at REIT as a viable option. All organizations possessing investments in assets that produce rent could actually look at REIT’s once they are made legal in India. According to the Managing Director at RICS, South Asia, Sachin Sandhir, REIT would be a definite step in the proper direction for the industry. However, taxation issues should be absent as they would otherwise counter the motive behind the introduction of REIT.

REIT would bring investors in retail to the forefront and the announcement of the same has sparked sudden interest from foreign investors and funds. PE funds are a little down but have not dried up completely and this will augur well for REIT. According to a report by Cushman & Wakefield, private equity funds possess $2 billion which has been readied for real estate investments. In the first half of the year 2013, PE investments were noted at $276 million and this was about 46 percent lower than the same period in 2012. Looking solely at policies and decisions, multiple industry circles have realized the need for propping up the housing and real estate sector through various methods. This will help investments come into this sector and create more jobs in the sector.

The economy has to get back to 8-9 percent of growth and real estate will play a key role in this resurgence. The Regulator Bill, REIT instructions and the Land Acquisition Act are all significant developments and the Finance Ministry has pushed for various measures that should ideally benefit this sector. These new developments are very essential for the sector and should give it a shot in the arm. According to the President at Unitech, PK Tripathi, proper funding is the most important aspect and the biggest issue faced by it at the same time. The demand for quality housing is on the rise and there are umpteen regulations lined up which could make fund raising a little more tedious and problematic. Prices automatically rise when supply options cannot match demand owing to regulations and funding related problems.

REIT is a viable option that will definitely enhance the sector and will be a pivotal fund raising vehicle. Finance options will help buyers deal with liquidity problems and execute projects on time. Real estate had been suffering owing to multifarious regulations which do not allow foreigners to invest in Indian real estate companies or non allowing of finance for purchasing land. Navneet Bhadla, Brys Group Director feels that with the General Elections around the corner, the government will have one last shot at addressing the issues in this sector and subsequently pave the way for more economic growth. According to Bhadla, this year could be a huge revival for the sector if taxation policies are addressed and investment is allowed to flow into the industry.

On a sweeter note, REIT could well ease the fund crunch of developers and help pave the way for better and faster project delivery to customers. The announcement has certainly raised the hopes of developers and real estate organizations with regard to finally making up for lost ground. One can only hope that big ticket funding flows into this sector which is the backbone of Indian economic growth and prosperity!