Skip to main content

How Real Estate financing has adapted to the New Normal

From a recent Business Today Cover Story:
There was a rush of foreign direct investment into Indian real estate when the sector was first opened, but that is now drying up. Private equity (PE) players, foreign and domestic, have greatly reduced their exposure - their investments in real estate fell by 36 per cent in 2012 over 2011, as compared to a 19 per cent reduction in such funding in India as a whole. And those still backing realty projects, such as Motilal Oswal PE or IIFL Private Wealth, have started offering loans instead of acquiring equity charging interest of more than 20 per cent and seeking collateral often twice the size of the loan.
...Even a veteran realtor such as the Mumbai-based Oberoi Realty, while venturing into the National Capital Region, has been looking for a local developer or landowner, so it only has to invest in the building of the project. Or take Nitesh Estate, a newcomer in the field, but one which has already done a successful IPO - it operates without any land assets. "This model allows the realtor more flexibility as the developer is not paying interest on loans taken to buy the land," says Pranay Vakil, Chairman, Praron Consultancy, and the former founder-chairman of property consultant Knight Frank India. "He can go about a project building by building, selling one fully before starting on the next. It also gives him more holding power in a bad economy." He says that at least half the projects under construction now follow this model.

Banks may still be reluctant to lend to realtors, but new ways of raising funds are being found. Hirco Plc, for instance, is using overseas funds in Indian projects in an ingenious manner. The company, launched by Priya Hiranandani-Vandrevala, is listed on the Alternative Investments Market (AIM) of the London Stock Exchange. Its projects in India, however, are built and marketed by a different company called Hirco Developments, led by Firdose Vandrevala, uncle of Priya's husband Cyrus. "Our model is to set up a special purpose vehicle (SPV), with Hirco Plc investing in it and getting preference shares," says Vandrevala, formerly with the Tatas and also an ex-chairman of Motorola India. "The Hiranandani family brings in the land and is allocated equity shares in return. Hirco Developments builds the products and markets them for a fee." It is currently executing one project at Panvel on Mumbai's outskirts and another in Chennai.
...While selling some of its Mumbai flats, Lodha Developers tried another tactic. It offered them in a price band instead of at a fixed price, in much the way an initial public offering (IPO) does, and decided the final price only after receiving buyer responses. Much like a successful IPO, it drew twice as many applicants as the flats it had to sell. "It was a nice way of grabbing some of the demand," says Vakil of Praron. Flat allotees too were later chosen through an automated software programme, the way IPOs do.
 Venture Intelligence is the leading provider of data and analysis on private equity, venture capital and M&A transactions in India as well as Financials & Valuations of Private Companies in the country. Click Here to view our products list including the Free Deal Digest Weekly: India's First & Most Exhaustive Transactions Newsletter.

Popular posts from this blog

VC Interview: Shailendra Singh of Sequoia Capital India

In a recent interview to Venture Intelligence, Shailendra Singh discussed some of the firm’s newer investments in the early stage segment including in the online payments space, the progress at a few existing portfolio companies and the active role the firm is playing in helping its portfolio companies scale and succeed in India and globally. Prior to joining the firm in 2006, Singh was a strategy consultant at Bain & Company in New York and before that, an entrepreneur in the digital media industry.

Venture Intelligence: How does Sequoia go about identifying potential early stage investments in India? Is there anything different you are doing today than, say, a couple of years back?

Shailendra Singh: There is a lot more focus on technology investing and early stage investing. In general, as you might remember a few years ago, we were doing primarily growth investing but in the past 18-odd months, we have had a very strong focus on early stage and that’s continuing. In terms of how…

PE investments in 2018 crosses $33-B to set new all-time high

Big Ticket investments in consumer apps Swiggy & Byju’s dominates year-end activity, even as investments in Core Sectors slow down
Private Equity (PE) investments in India rose to their highest ever figure of $33.1 billion in 2018 (across 720 transactions), according to data from Venture Intelligence (http://www.ventureintelligence.com), a research service focused on private company financials, transactions and their valuations. While PE investments have already surpassed the previous high - $24.3 Billion across 734 deals in 2017 - in the first nine months of 2018, the mega investments in Consumer Internet & Mobile startups such as Swiggy and Byjus towards the year-end, helped the 2018 total vault by 36% year-on-year. (Note: These figures include Venture Capital investments, but exclude PE investments in Real Estate.) The year witnessed 81 PE investments worth $100 million or more (accounting for 77% of the total investment value during the period), compared to 47 such transac…

ChrysCapital and Sequoia Capital India grab two awards at APEX’19 PE-VC Awards

Mumbai, India, Feb 27, 2019: ChrysCapital and Sequoia Capital bagged two awards each as part of the “Awards for Private Equity Excellence” (APEX)event organized by Venture Intelligence. 

ChrysCapital bagged the Private Equity Fund Raise of 2018 Award (Closed $850 M Fund VIII within 4 months of launch) and the Private Equity Investor of 2018 Award (for its Exits from LiquidHub with 4x in dollar terms (within 4 years of its $53-M investment), AU Small Finance Bank with 11.5x return,  Torrent Pharma with 2.95x, City Union Bank with 2.83x, L&T Infotech with 2.56x)

Sequoia Capital India won the Early Stage VCInvestor(the firm registered 10x+ exits in Byjus Classes and SCIOInspire) and VC Fund Raise of 2018 (the firm closed an almost $700-M Fund VI).


Award Winners at APEX'19 PE-VC Awards

The event opened with a Fireside Chat with Kiran Reddy, CEO of SPI Group interviewed by his long time friend and colleague Vineeth Vijayraghavan.



Snapshots of the Awards Ceremony: (L-R) Gopal Srinivasan, …