Red Fort Capital, an international real estate fund founded by GB Singh, Parry Singh and Subhash Bedi, has invested nearly Rs 2,000 crore (Rs 20 billion) in the Indian real estate sector and claims that it is one of the few funds to have invested even in the downturn.
The fund plans to invest an additional Rs 1,500 crore (Rs 15 billion) in the next one-and-half-years in India's real estate sector and plans to soon launch a non-banking finance company.
The sales momentum in residential apartments is because of reasonable prices, Parry Singh, one of the fund's managing directors, tells Raghavendra Kamath over telephone.
What are your plans for the Indian property sector? What are the kind of asset classes you are looking to invest in?
We plan to invest $200-300 million (around Rs 1,400 crore) in the next one-and-a half years in cities such as the national capital region, Mumbai and Bangalore.
Our focus will continue to be the residential sector.
We focus on all aspects of foreign direct investment-approved investments and like projects with shorter approval cycles. We also invest to unlock capital-starved projects, which we call 'completion financing'.
For instance, if a large project is stuck due to temporary shortage of working capital, we are happy to assist -- for instance, we recently invested alongside Parsvnath to help complete a large project.
Private equity deals have started trickling in the real estate space after a prolonged lull since the beginning of the year. What has changed in the last three-six months that is giving confidence to funds like yours to invest now?
We have been consistently investing through the slump -- we investment in 3C Boulevard in December last year and in Parsvnath in June. But fundamentally, nothing has changed. Only value-for-money residential properties in excellent locations are selling.
The commercial property market is still facing a supply glut in peripheral markets. FDI funds are cautious given the rapid gyrations in the market. The ever-increasing complexity and vacillation of Indian FDI laws -- with three-year lock-ins, land restrictions and so on -- is also having an effect on investors.
A lot of people ask why not look elsewhere, especially where regulatory regimes are simpler and friendly.
What changes do you see in proposals by developers now vis-a-vis last year, when the sector was in a bad shape?
Positive sentiment is back. Money was the king last year. Now, developers and promoters think that the positive sentiment is going to put them back in the driving seat.
They say Sensex has touched the 17,000 mark and our product will sell. But clearly, sales are not back to the 2006 levels. Only smart folks who are pricing their products well are making money.
How do you see the sudden rush of real estate companies to the IPO market? Do you have any concerns?
Entrepreneurs are saying that markets are rallying and let us participate in them. But there is ample reason for concern. A lot of the companies have forecast only revenues and their balance sheets are not very transparent. We have to see how things unfold in the coming months.
Do you think the sales momentum will continue as developers have raised prices and the Reserve Bank of India is expected to raise rates later this year?
Sale momentum is due to reasonable prices. Customers are attracted by lower prices. We believe that reasonable prices should be held. There is no point in killing the golden goose by increasing prices.
How are international investors looking at investing in the Indian real estate market as some limited partners have pulled out investments?
LPs have a global perspective and as other markets become more attractive and FDI norms in India more wishy-washy, quick re-allocations are bound to happen.
What is your outlook on property prices and the demand for homes in the next 6-12 months?
Price should remain stable in the residential market and the demand for value-for-money and quality residential spaces remains strong. For instance, in our Lotus Boulevard project with 3C, we have sold over 1,500 units because of the prudent pricing that we have adopted.
Are developers out of the woods?
Some large companies that raised public money have clearly shored up their balance sheet. But there are still many smaller players who are hedged precariously.
Image: Parry Singh