Investors are returning to Real Estate

Investors are returning to real estate in interesting avatars after a hiatus of a year-and-ahalf. Many of them have sold N properties at high prices in recent p times on the back of a recovery, i and are now eyeing fresh projects to put their money in.
They are primarily long-term i players, many of them rich indi- b viduals looking at mid-priced and p premium residential projects in a metros such as Mumbai, Delhi- v National Capital Region and Ban- r galore, said property analysts. t Jones Lang LaSalle Meghraj, a property advisory, said in its r March global market perspective t report the previous two months t saw high networth individuals (HNIs) as new investors in Indian o real estate.

Their return spells relief for the a sector. The investors are looking a at long-term opportunities with a t lock-in of two-three years, mainly in residential projects. But they d are still steering clear of commer- o cial and retail projects such as of- a fice buildings and malls--these segments being slow to recover. g In a residential project near F Electronic City, a business hub in Bangalore, a group of around 10 ndividual investors recently ought 30 apartments, each riced at Rs40 lakh on an aver- ge, through a special purpose ehicle (SPV). To ensure assured eturns for them over a period, he developer appointed LJ Hooker India, a property adviso- y, as an intermediary to struc- ure steady rental income from he apartments.

“The SPV would also look at ther projects, and in Bangalore, where apartments are available t the Rs40-50 lakh category; they re attractive investment op- ions,“ said Alexander Moore, managing director, LJ Hooker In- ia, but didn't disclose the devel- per's name, citing a confidenti- lity clause.

Bulk buying of apartments is ood news for developers, said arook Mahmood, chairman and managing director of Silverline Group, a Bangalore-based prop- erty advisory.

Several developers are stuck with unsold inventory because of the slowdown last year. Accord- ing to Mumbai-based realty re- search firm Liases Foras, the Mumbai metropolitan region alone has 82 million sq. ft of resi- dential inventory, of which 20% is ready stock.

“Investment vehicles such as SPVs are similar to buying shares in a company. If an investor in an SPV wants to exit, he can simply sell his stock to another investor,“ explained Mahmood, who said he has inked multiple bulk deals in recent months through SPVs.

These investors are different from speculators who ruled the property markets until the end of 2008, who would typically invest in a project and look to exit in 6-12 months after making a prof- it, said analysts. This has changed now as developers are incorpo- rating longer lock-in periods in sale agreements, discouraging hasty exits. But they are also pushing the envelope to draw in- vestors, particularly to commer- cial projects.

Millennium Spire India Man- agement Pte Ltd, for its flagship commercial project in Manesar, Gurgaon, is offering to pay Rs55 per sq. ft as rent to investors for up to about three years after handing over the properties. Ear- lier, developers would offer to pay rent to investors till the prop- erty was handed over and could be leased to offices.

Indian office space vacancy rates, which currently stand at 17%, are set to increase sharply due to massive supply, Jones Lang LaSalle Meghraj said in its report. Vacancy rates in subur- ban markets are expected to breach 30% in the near term.

According to a March wealth report by Knight Frank India, a property advisory, and financial services firm Citigroup Inc., the number of HNIs in India is grow- ing by 20% every year, second only to Singapore.

Developers are using investors to complete acquisitions or fund construction against which they are pledging both ready and un- der-development properties at steep discounts.

“Investors are coming in to the rescue of many developers, who need urgent equity and are pledging properties to them at steep discounts and offering high returns for a period of two-three years,“ said Amit Goenka, nation- al director (capital transactions), Knight Frank India.

Pujit Aggarwal, managing di- rector, Orbit Corp. Ltd, a Mum- bai-based developer, said such investors almost function as pri- vate equity lenders. “They charge high returns and will flip the product once it is ready.“ At least 25% of Orbit's properties are cur- rently held by investors.