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February 18, 2007

Real Estate funds: How long will the boom sustain?

Businessworld had an article on the rash of Real Estate funds that have entered the market.
Click Here for a list of new RE funds in the market.

The pertinent question at this point is, how will this deluge of funds change the real estate sector? Kapoor says that institutional money will make the industry much more organised. Adds Mehta: “Funds coming to India look at appropriate and efficient routes.” He sees funds coming in larger quantities and possibly through these routes only. Funds have also started investing in infrastructure development as infrastructure is a constraint and may hamper growth of real estate to some extent. If opportunities are rightly identified, it will boost real estate. As Edelweiss’s Mathew says: “Private equity investments in real estate will also need to be complemented by investments in infrastructure creation. It should also support redevelopment of metros along with growth of tier-II and tier-III cities.”

Yet, experts say that the unabated rush of capital may not continue for long. As mentioned earlier, expected returns are currently high because demand for quality commercial space is outstripping supply. But current investments are being deployed in developing land, which will ultimately turn into actual supply in 2-3 years. Mathew says that once supply stabilises, investments in the sector will taper out.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.