New Delhi: Fire Capital Fund Mauritius Pvt. Ltd, the first venture capital fund focused on the Indian real estate sector, has said it plans to raise a second fund of $500 million (Rs2,035 crore) to invest in the country, despite the global credit crunch because the Indian market offered higher returns relative to others.
The fund will likely be launched during the fourth quarter of the current calendar year, said William Eagan, adviser to Fire Capital. The company will raise capital primarily from investors in the US and Europe. Eagan said global investors were still keen on parking their funds in the Indian real estate market.
“There is a lot of interest in India’s real estate sector as an asset class, because one was not allowed to invest in this sector before 2006,” Eagan said. “People, from a portfolio point of view, want to have more investment in India’s real estate sector. Because they do believe, the sector offers attractive risk-adjusted returns.”
The return on investment in India’s real estate market ranges on an average between 20% and 25% every year. This is higher than the returns in other markets, Eagan said. In mature markets these returns can be well below 10%.
Good returns: The return on investment in India’s real estate market ranges on an average between 20% and 25% every year. Mint Photo by Harikrishna Katragadda
The second fund will invest in real estate projects such as residential and mixed-use developments in tier I, or top cities such as Bangalore and Delhi, and tier II, or smaller, cities such as Pune and Chandigarh. The focus will, however, be on tier II cities, Eagan said. “We do not chase projects in overheated markets. So, while we do invest in tier I cities, the focus would be on tier two cities,” he said.
Land values in India’s top cities such as Mumbai and Delhi have risen three times in as many years as the economy grew at a record pace, touching more than 9% growth per annum, Indians found better paying jobs, easier home loans and a stock market boom created quick wealth. The values have risen so sharply that some complain the only affordable housing is in India’s upcoming cities.
Fire Capital, which typically works with local developers in the tier two cities rather than scout for large realty firms, takes equity holdings in projects. The investment is self-liquidating, which means the fund receives a return on its investment, once the project is sold. The profit is shared between the fund and the developer based on relative contribution, Eagan said.
Fire Capital launched its first fund in 2006. The $120 million fund could bring in about $250 million with additional investments. In May this year, the fund announced its first investment—in the Indore-based M Jhaveri Group’s 137-acre township.
During the year, Fire Capital plans to invest in projects in cities such as Chennai, Bangalore and Jaipur, with investments ranging from $5 million to $15 million.
The fund is expected to deploy 80% of its $250 million corpus by December this year.
“We have finalized some projects for investment. But, we cannot talk about it now as it is premature,” Eagan said. Fire Capital is being managed by Om Chaudhary, who was earlier a partner at Feedback Ventures.