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Slew of investors look at raising funds to buy apartments in a slow market

LiveMint logoLiveMint 25-05-2017 Madhurima Nandy

Bengaluru: Several investors are planning to raise real estate funds to buy under-construction or ready apartments in bulk from developers, taking advantage of high inventory levels and developers grappling with tepid sales over the last four years.

While Piramal Finance Pvt. Ltd was possibly the first to introduce the concept of an “apartment-themed fund”, the prolonged slowdown in the real estate sector is likely to attract many more private equity (PE) funds to buy residential units in bulk at steep discounts.

Peninsula Brookfield Investment Managers Pvt. Ltd, a joint venture between developer Peninsula Land Ltd and global alternative asset manager Brookfield Asset Management, is planning to launch a fund later this year that will buy apartments at an advanced stage of construction. This would be Peninsula Brookfield’s second fund, after it deployed around Rs1,100 crore from its first fund, which was a residential debt fund.

“Peninsula Brookfield is looking at a new fund that will buy apartments in projects across cities. This is an opportune time and there are lot of deals in the market,” said a person directly familiar with the plans, who didn’t wish to be named.

Brookfield didn’t respond to an email query.

Fund managers said a lot of opportunities are available for both under construction and ready units but as with any other investment in real estate, one must do due diligence of the developer counterpart, underlying project and stage of completion fully before committing to such structures.

After raising and fully deploying its first fund—IPAL Residential Opportunities Fund-1, IPAL Fund Managers, which has a strategic partnership with Centrum Wealth Management, is now gearing up to launch a second fund this year. The new fund will have a target corpus of Rs350-400 crore and will buy under-construction residential stock.

“Like the first fund, this will focus on Mumbai. There are enough opportunities in the market to buy residential stock, but we look at projects which have obtained IOD/CC (Intimation of Disapproval/Commencement Certificate),” said IPAL’s managing director and chief executive Ramesh Jogani.

IPAL’s first fund of Rs125 crore was invested in four transactions—all in the stock buying space.

In most cases, funds buy apartments in a project in bulk and then exit as and when the developer liquidates the stock.

Anuj Puri, chairman of residential brokerage firm Jones Lang LaSalle Residential, said the company is setting up a unique platform which will do the bulk buying and selling of apartments on its own, without relying on the developer, as most other funds do. On account of the brokerage business, Puri’s firm will have 1,000 brokers on payroll by the year-end, giving it an advantage over peers because of the vast network.

“Slow sales are a challenge and so we will pick ready apartments that we know we can quickly sell at a certain price and only then make an offer to the developer. We are trying to see if we can reduce the selling time from an average 18 months to a year,” Puri said. Piramal’s “Indiareit Apartment Fund” is fully deployed and has made two exits already.

“...We have also adopted apartment buying structures in some of our structured debt transactions for more control and upside creation. We continue to adopt such structures across our proprietary debt transactions,” said Khushru Jijina, managing director, Piramal Finance.

Over the last few years, most high net worth individuals have exited real estate or don’t invest the way they did before. Property analysts say that institutional investors have replaced HNIs in a way.

“It’s clearly opportunistic but the challenge is that if developers couldn’t sell these units themselves, how will funds go and sell the same stock? Also, if funds sell them directly and at a discount, it is likely to create confusion for buyers because there will be different sellers and varying price points in the same project,” said Shashank Jain, partner, transaction services, PwC India.

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