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Singapore: Indiabulls Asset Management Co., backed by India’s third-largest home-finance company, seeks to raise about $325 million for real estate private-equity funds over the next year, to finance residential projects as banks step back.

Indiabulls Asset will start marketing its second real estate fund to domestic investors in February, said Ambar Maheshwari, chief executive officer of private-equity funds. The asset manager aims to raise 500 crore (about $75 million) in the second fund and another $250 million from overseas investors by the middle of next year, Maheshwari said. The fund will target a gross internal rate of return above 20% by investing in debt instruments and will focus on residential projects in India’s top cities.

Private-equity funds are stepping in to fill a void as banks shy away from funding developers because of falling home sales. Growth in bank lending for commercial real estate slowed to 2% in the 12 months through 18 September, from 20% a year earlier, central bank data showed. That’s prompted developers to turn to private-equity firms and the debt market. Indiabulls Asset is seeking to raise $1 billion for private- equity funds, predominantly real estate, in the next five years, the firm said in February.

“Lending from banks has dried up but there is still enough liquidity in the system, so non-bank finance companies and private equity are filling that gap," Maheshwari said.

Falling sales

Home sales in India’s top eight property markets fell 6% in the quarter through September from the previous three-month period, while unsold inventory rose by 6% in the period, according to research firm Liases Foras. Still, the cost of funding for developers has been declining as interest rates move lower, Maheshwari said. Developers can now get construction financing at about 12% compared to about 16% a year ago, he said.

Reserve Bank of India governor Raghuram Rajan has taken advantage of a global commodity slump to slash the repurchase rate 125 basis points this year to 6.75%, including a larger-than-estimated 50 basis point reduction in September.

Indiabulls Asset has invested in four residential projects, two each in Delhi and Mumbai, and is exploring an investment in the southern Indian city of Bengaluru from its first fund, Maheshwari said. The second domestic fund planned will also invest in the residential sector, he said. Bloomberg

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