Mumbai: Ajay Piramal’s real estate fund will launch a property-specific fund that will give investors the opportunity to buy apartments in such projects at a discount.
“We will jointly identify residential projects with builders and launch a property-specific fund for the project,” chief executive and managing director Ramesh T. Jogani said on Tuesday.
Investors in IndiaReit Fund Advisors Pvt. Ltd’s plan “will be allotted units which will entitle them to apartments in the project from our share of investment in the project, at prices lower than that offered by the builders.”
Investors will be allowed to invest up to the cost of the flat. They will have to pay the cost price of the property along with a 15-20% management fee to buy it, Jogani said.
“This kind of product is untested and unprecedented in the current regulatory environment,” said Amit Goenka, national director, capital transactions, at real estate consultant Knight Frank India Pvt. Ltd.
For example, a property that has a land cost of Rs1,000 per sq. ft and a development cost of Rs1,500, will be offered by IndiaReit to its clients at Rs2,700 per sq. ft, giving it a margin of Rs200 per sq. ft. If the apartment developer sells to regular customers at Rs3,500 per sq. ft, that translates into a discount of Rs800 per sq. ft for IndiaReit investors.
“Our logic to this sale hinges on our guarantee to investors with a 20% return to our investors. Our plan is to take this theme to a mass scale,” said Jogani, who closed a Rs350 crore domestic fund recently and is in the market to raise Rs450 crore from domestic institutional investors for real estate development.
The fund is betting that the popularity of affordable homes won’t wane.
IndiaReit also plans to raise about Rs1,200 crore from high networth individuals for a fund that will focus on buying land around large cities earmarked for residential development and sell it within 12 years. Investors should be willing to stay invested for that length of time against the regular tenure of nine years. “We believe that land prices will rise as government creates infrastructure around large cities,” Jogani said.
Most real estate funds are raising money as this is the ideal time for building assets, said Suranjit Pal, analyst with Elara Securities (India) Pvt. Ltd, who tracks real estate.
“IndiaReit has a sound back-up and track record, though uncertainty always prevails in the market,” he said.
IndiaReit is promoted by Piramal Enterprises, which owns three funds with a corpus of $450 million that have jointly invested along with eight developers across nine cities to build residential properties.
The company is looking to sell nearly 260 acres it owns in Hyderabad instead of developing it because the Telangana agitation has put off investors and buyers, Jogani said.