CREATIVE FINANCING SOLUTIONS ALTERNATE FINANCE & PE STRATEGIES
In real estate financing, shifting from the conventional bank and private equity funds, a range of capital sources are now available tailored to specific real estate projects. As per Neeraj Bansal, Co-head & COO- India Global, KPMG in India, said, “Real estate funds are trending towards specialization, by asset class, strategy, or both. Investors are adopting inventive fiscal approaches for investing in office, retail, industrial, warehousing or hospitality. In fact, the burgeoning realty sector is witnessing a substantial expansion, witnessing over $4.5 billion in investments from January to September—a 27% rise year-on-year.” Commenting on the elements that have led to the surge in investments received in recent times Amit Goenka, MD & CEO, Nisus Finance, stated, “The real estate sector in India is experiencing significant growth due to an influx of domestic and foreign investments. This is driven by funds raised through capital markets, alternative assets, due to the country's rising geopolitical influence.” Binitha Dalal, Founder and Managing Partner- Mt K Kapital Head – Fund Raising, Rustomjee Group, added, “The pandemic has emphasized the importance of real estate and has further become an increasingly attractive asset class due to the focus on quality developments and delivery. India's growing economy, advantageous demographics, and domestic consumption potential ensures continued investment in real estate.” Saurabh Rathi, Managing Director & Co-Head (Real Estate), Motilal Oswal Alternates agreed, “India has become a global investment hub, especially in the real estate sector due to improved governance and transparency. The top 35 realty companies are expected to hold a 50% market share. While, stable prices now benefit all stakeholders, to sustain growth, securing $10 billion annually for urban construction is crucial, from both domestic and offshore sources Important factors to consider are infrastructure status, potential non-financial obstacles in affordable housing development, incentives for developers to invest, and project-specific resolutions within IBC for transparency and investor attraction.” According to Sahil Shah, Director, Certus Capital & Earnnest. me, “There is a $10 billion risk capital deficiency for land and early-stage real estate projects. The market is divided between residential and commercial properties, with foreign investment mainly in commercial. Residential projects suffer from underfunding, which can be addressed by capital through AIFs. Commercial real estate can benefit from REITs, offering 12-15% returns on well-managed secured assets.” Nitin Idnani, Executive Director, Axis Capital Limited added, “In the real estate funding market, foreign investors favor completed assets, therefore domestic capital is crucial for early stages. AIFs, HNIs, and family offices contribute to this sector but face high-risk perception and unsuitable pricing. Improving corporate governance and transparency can help reduce risks and enhance pricing.” INNOVATIONS AND PRODUCT APPROACHES Speaking about the increased impact of certain aspects in early-stage funding from a developer's perspective, Binitha Dalal stated, “RBI has enforced strict regulations on NBFC and HFC funding for early-stage projects. Other Alternative funding sources include fractional ownership, and listed NCDs. We have also launched an AIF for residential projects.” Amit Goenka was of the view that tokenization and blockchain technology are crucial in attracting Generation Z to real estate investments. Fractional ownership, REIT and token platforms show potential for more capital formation by young investors. As regulations evolve, real estate investments will shift towards a broader audience.” Saurabh Rathi added, “I agree that advancements in technology will enable us to develop a sophisticated approach to raise capital nationwide. However, this may take 3 to 5 years to achieve. During this period, early land investments remain necessary, maintaining the debate between domestic HNIs and offshore capital. As the industry matures, smart developers employ various strategies to reduce capital costs and make projects viable, such as implementing different financial structures and securing more optimally priced capital.” Neeraj Bansal stated, “Family offices are increasingly influenced by next-generation members who are taking on decision-making roles in investment. Their risk management understanding is evolving and their awareness is growing in the digital era. The government's regulatory efforts and younger first-time homebuyers entering the market indicate upcoming changes and significant impact on investment decisions and product development.” Sharing his response regarding innovations and product approaches for effectively targeting ultra-HNI individuals in the real estate sector Nitin Idnani stated, “Firstly, I believe the inclination towards real estate is more family driven. More often than not, the next generation gets inspired to invest in real estate by the examples of earlier generation’s wealth creation through property investments.” Sahil Shah added, “In case of ultra HNI, many are shifting from direct real estate ownership to fractionalized options like REITs and AIFs. The middle-class segment needs greater access to investment opportunities, better management, and organized approaches. Creating regulated, tax-friendly avenues could alleviate constraints faced by mid-income retail investors.” Enhance affordable housing by addressing tax incentives, financial institutions' risk distribution, and separate asset class acknowledgment, thus reducing lending rates for developers. Promoting innovation over restrictive regulations is essential. This approach will allow the country's vast talent pool to create new financial solutions and address complex funding challenges progressively. In the real estate sector, the capital should be permitted to flow freely to areas of need, and foreign investment in Indian real estate should not face regulatory barriers. The government must lower the AIF minimum investment requirement to 50 lakhs, allowing more earnest first-time investors. CHANNELIZING DOMESTIC SAVINGS THROUGH INSTITUTIONAL METHODS LIKE REITS CAN SUPPORT EARLY-STAGE FUNDING AND OFFER SECURE INVESTMENT OPTIONS FOR RETAIL INVESTORS, ULTIMATELY BENEFITING BOTH LENDERS AND BORROWERS IN THE REAL ESTATE MARKET-NITIN IDNANI DEMOCRATIZING CREDIT INVESTMENT OPPORTUNITIES REQUIRES REGULATORY COLLABORATION AND SAFEGUARDING MIDDLE-CLASS INVESTORS. SUBSTANTIAL EFFORTS MUST BE DIRECTED TOWARDS THESE GOALS FOR WIDESPREAD CAPITAL ACCESSIBILITY-SAURABH RATHI AIFS CAN IMPROVE LIQUIDITY, AND GOVERNANCE, AND SUPPORT QUALITY DEVELOPERS. THE CHALLENGE LIES IN PROVIDING AFFORDABLE CAPITAL ACCESS FOR SMALLER DEVELOPERS, FOR BALANCED GROWTH- SAHIL SHAH CURRENTLY CONTRIBUTING 7.3% TO INDIA'S GDP, THE REAL ESTATE SECTOR CONTRIBUTION IS EXPECTED TO INCREASE TO 15.5% BY 2047, PROMISING SIGNIFICANT RETURNS IN THE COMING YEARS-BINITHA DALAL THE OFFICE SEGMENT PREVAILED WITH A 60% SURGE AND $3 BILLION INVESTED. INDUSTRIAL, WAREHOUSING, AND HOUSING SECTORS EACH GARNERED ROUGHLY $700 MILLION. REGARDLESS, THE CAPITAL DEFICIENCY LINGERS- NEERAJ BANSAL INDIA'S GROWING ECONOMY MAKES IT AN ATTRACTIVE DESTINATION FOR QUALITY CAPITAL AND IN REAL ESTATE ASSETS. REITS WITH FAVOURABLE REGULATIONS IS BECOMING AN ATTRACTIVE MODE OF INVESTMENT-AMIT GOENKA
Tags : Neeraj Bansal Saurabh Rathi Amit Goenka Sahil Shah Real estate funds Binitha Dalal