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BENGALURU : Motilal Oswal Real Estate, the realty-focused private equity arm of Motilal Oswal Financial Services Ltd, has seen high interest from domestic high net-worth individuals and family offices for its India Realty Excellence Fund V (IREF V).

India’s residential sector is slowly bouncing back to normalcy after the second wave-led disruption, though the scarcity of construction finance and working capital has made it challenging for nearly 80% of developers. In an interview, the private equity firm’s chief executive Sharad Mittal spoke about the gradual recovery in the residential sector and the demand for capital. Edited excerpts:

What’s the status of your fifth fund?

We are in the last leg of closing the fund. Earlier, we had planned to raise 800 crore, but the response (from LPs) in just two months has been great. So, now we have increased the target corpus to 1,000 crore. We should finish raising the fund in another two months. We have already closed one transaction in a project of Shriram Properties, and other deals are also underway. We are investing in newer developers or those we haven’t invested in earlier. Under our earlier funds, where we invested at the land acquisition stage, the new fund is debt focused and will do classic construction finance deals. The focus remains on the top seven property markets, including Ahmedabad.

How tough is it for developers to get construction finance?

The demand for capital is very high because there is a scarcity of the right kind of capital. Construction finance remains very difficult for most developers. Developers who have an established track record and have performed will get money. But there is a gap in the market. NBFCs (non-banking financial companies), which were the main source of project funding between 2013 up until 2018-19, have not been that active. So it largely boils down to banks to take the pole position. This is why we are also exploring transactions where we will do last mile project funding, and we will buy off loans from existing NBFC investors and also put in fresh money into a project. Borrowing costs have come off for large developers, but it still remains a lender’s market because of the scarcity of capital.

How has the recovery been for the residential sector after the second wave?

There are a lot of narratives around recovery, and we are witnessing a part of that. People are stepping out for site visits. In the housing space, completed and near-completion projects are selling well. Of course, the lower mortgage rates are playing an important role. Property prices have also been stagnant, and we are still some time away from a price rise. I don’t think there is any scope of price rise for the next two years. Overall, the recovery process has started, but it will take time. We are coming out of a really long, bad spell, and not everyone will be benefited from it. The market currently is driven by end-users, and so we need to be patient.

The second wave got me thinking because despite the kind of impact it had, once it subsided, people are again going out and buying. With many continuing to work from home, the importance of having your own home has really gained significance. If we remain at these lower interest rates, the residential sector recovery will be meaningful.

Has the pace of recovery been different across the metros?

We are seeing Bengaluru, Pune, Hyderabad and Chennai recovering faster because the bulk of buyers is from the IT sector. As we know, IT companies are doing well, recruiting actively, offering increments. All that and WFH is giving a flip to IT-led cities.

In the Mumbai Metropolitan Region (MMR), the sales momentum in luxury and affordable projects was good till March, till the stamp duty exemption was applied. It then slowed down, but certain pockets in MMR are recovering well. Delhi-National Capital Region is a challenge because nearly 90% of the developers are struggling there. There are corporate developers now, but it will take a long time to overcome the large trust deficit, inventory overhang and other issues that have piled up over the years.

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