PE firms spot big opportunity in last-mile real estate funding in India

Residential and commercial buildings stand in Mumbai, India, on Friday, Sept. 9, 2016. Photographer: Dhiraj Singh/Bloomberg

Private equity (PE) firms are increasingly looking at capitalizing on the growing requirement of last-mile funding by real estate developers, considering that the prolonged slump in the residential segment has been aggravated by the ongoing liquidity crisis.

Several private equity investors are either setting up platforms for financing real estate projects, which are in the late or final stages of construction, or looking to offer capital for such projects from existing funds.

Demand for late-stage capital has gone up over the past two years with developers focussing on completing projects, particularly after the implementation of Real Estate (Regulations and Development) Act (Rera) in 2017. The ongoing liquidity crisis and reluctance of banks to refinance loans have also increased demand for funds, given that several late-stage projects are stuck for want of capital.

For instance, global alternative investment manager Investcorp, which is setting up a new real estate platform, will look at opportunities for last-mile funding apart from serving other credit requirements.

According to Ritesh Vohra, partner and head (real estate), Investcorp India Asset Managers, developers are faced with severe cash flow issues due to the current liquidity crisis in the financial markets along with the continuing slowdown in the residential segment.

“In such a situation, last-mile funding makes eminent sense as any fresh liquidity that comes in to complete projects can be quite transformative for all stakeholders,” he added.

Last month, Edelweiss Alternative Asset Advisors (EAAA) partnered with South Korean Financial services conglomerate Meritz Financial Group to launch a late-stage funding platform to buy out existing residential real estate loans. The platform will target to raise $1 billion from international institutional investors in the next 12 months. Everstone Group is another private equity investor which has set its sight on lending in the real estate space. Mint reported on 18 September that the India- and SouthEast Asia-focused private equity firm is looking to set up a credit fund for the real estate sector in India.

Private equity firms are eyeing this space also because last-mile funding is relatively less risky, considering that such projects come with the required approvals and have already started generating sales.

“Projects are not getting completed because of lack of capital, especially in the last-mile stage. So, where approvals are in place, construction has started and sales have even been established, risks are mitigated to a certain extent. With less risk, you get a better reward; hence, everyone is interested. But it has to be pick and choose,” said an official with a real estate fund, requesting anonymity. The interest from private equity firms comes at a time when the government is lending help to sort out the mess in the real estate sector.

Finance minister Nirmala Sitharaman recently announced setting up of a ₹25,000 crore alternative investment fund to provide last-mile funding for stalled housing projects.

According to the government, there are around 1,600 stalled projects with 458,000 incomplete housing units. While the government will initially pump in ₹10,000 crore, it plans to raise the remaining capital through several other institutional investment firms and sovereign funds, including State Bank of India and Life Insurance Corp. of India.

Real estate experts said the government’s initiative to revive stalled projects will revive sentiments in the residential segment, which has seen a slump for the past four or five years.

Home sales have seen continuous decline since 2014, barring a marginal growth in 2016. However, post the government’s demonetisation move and implementation of the good and services tax (GST), home sales saw a sharp decline by 40% to 72,300 units in the first nine months of 2017, according to property consultant JLL. “The declining trend in residential sales stabilised after 2017 whenl sales gained traction in 2018 and reached 1.15 lakh units in the first nine months of 2019. However, the recovery has been gradual and the quantum of sales is still a tad below the 2016 levels,” said the note by JLL published on 22 October.

This article was first published on livemint.com.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.