Dewan Housing Finance will launch its Rs 250-300 crore (Rs 2.5-3 billion) real estate fund. The fund will target mass housing in terms of quality development in urban and semi-urban areas.
This will be the country's fourth real estate fund in a span of two months.
Housing Development Finance Corporation jointly with State Bank of India launched the first venture capital fund with a capital base of Rs 1,000 crore (Rs 10 billion). The Kotak group set up its $100 million real estate fund, after ICICI Ventures.
"We propose to put in about 10 to 15 per cent of the corpus once we receive approval from the Securities & Exchange Board of India," Kapil Wadhwa told Business Standard. Talks are on with domestic institutions and foreign institutional investors to contribute to the fund.
Real estate funds would invest in various development projects in terms of equity component. Dewan Housing Finance's fund aims to invest in residential townships to meet the increasing demand, said Wadhwa.
He fathoms that there is a need for 300 townships in the country, a shortfall that can be met through investments by real estate funds.
"There is a general need for good townships development but these may not take place in urban cities," he added.
"Establishment of real estate funds is the first step towards funding in an organised manner. So far real estate has been funded through a lot of debt, and not many players have looked at the equity investment route as yet," Wadwa pointed out.
With real estate funds being set up across the country, many property developers have approached housing finance companies setting up such funds, said industry sources.
Aside from residential housing, here is a lot of demand for commercial space to meet IT and ITES activities in the country.
Since the government liberalised foreign investment norms, many foreign investors have expressed interest to set up projects in the country.
"There is a lot of capital waiting to get into the Indian real estate sector. This will see the beginning of better quality residential townships," said Wadhwa.
Real estate developers are optimistic about the launch of so many funds in the country. Nevertheless Niranjan Hirandani pointed out that real estate funds would not help increase the number of real estate development projects undertaken unless supply and infrastructure are improved.
Urban Land Ceiling Act and the Rent Control Act control the supply of land available for development.
Some developers are keen to look at the equity participation by the fund positively.
"This will give us access to large scale projects," said Parag Munot, director, Kalpataru Constructions Overseas Pvt Ltd.
There is a lot of interest in real estate funds since returns from the real estate sector well exceed those for most other investment alternatives in the market, said financial analysts.
Yields on commercial real estate across metros in India are higher than those prevalent in global real estate markets, they pointed out.
Worldwide real estate represents a substantial share of fund allocations by institutional investors.
With the increase in professional players entering the real estate business coupled with the recent boom, there has been a lot of demand from investors for a real estate investment scheme.
