LAST MILE FUNDING & REALTY REVIVAL

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WILL THE LAST-MILE FUNDING TRIGGERED BY GOVERNMENT AND PRIVATE REALTY FUNDS REVIVE INDIAN REALTY? A PANEL OF FINANCE EXPERTS DISCUSSED THE FUTURE TRENDS OF FUNDING IN REAL ESTATE. In terms of last Mile funding the name that comes up foremost in mind is the SWAMIH fund. With Over 32 housing projects worth 4200 crores having received final approval from the fund, Irfan Kazi, Chief Investment Officer, SWAMIH Investment Fund – I, SBI Cap Ventures Ltd remained bullish on its performance. He shared, “It is a fund with a social impact objective with a clearly defined mandate to focus on completing the project. Our funding is not dependent on the sales strategies of the developer or the location of the project. Its main criteria is the completion of the construction so that homebuyers can get their homes. This is for the first time that a fund is looking at the project and not the promoter and is ready to finance a project even in remote locations of the country.” Anuj Puri, Chairman Anarock Group concurred, “SWAMIH Alternate Investment Fund is creating a differentiator in terms of its intent and purpose as stated by the government of completing the projects where no other financier would be interested. The fund has been structured beautifully and has funded projects across a broad mix of cities, including Tier-2 locations like Karnal, Panipat, Lucknow, Surat, Dehradun, Kota, Nagpur, Jaipur, Nashik and Chandigarh.” Sharad Mittal, Executive Director & CEO, Motilal elaborating on the housing segment recovery pointed out, “Low cost housing has tremendous demand, but is also the most disrupted by the covid as the buyer’s incomes have been hugely impacted. Luxury is over built and the demand and supply ratio is skewed. The sweet spot is the mid-income housing, driven by the middle class bracket of people with more stable incomes.” THE CHALLENGE OF FUNDING Investing through the fund route is the best alternative in current times to reap the benefits of the bottom out pricing. The strategy for investors now pivots around late stage monetizable residential assets Amit Goenka, Managing Director & CEO, Nisus Finance & Investment Managers | Nisus Fincorp Private elaboratted, “RERA and other regulatory changes have consolidated the industry, however cConsumer sentiment has to be revived and for that the completion of stalled projects becomes critical. The last mile funding by PEs becomes the last resort for such projects. Investment in nearly complete/ completed mid income housing in key micro markets of MMR, NCR, Bangalore, Hyderabad, Kolkatta, Pune and other major cities is likely to reap significant capital upside.” Anuranjan Mohnot, Founder, Managing Director & CEO, Lumos Alternate Investment Advisors Pvt. Ltd. added, “In smaller cities, the biggest challenge is the lack of corporate governance in realty firms. In cities like Surat, Baroda, Rajkot it is very difficult to raise investors’ confidence, until they are 110% sure about the credibility of the developer. In the last 10 years not much of investment has happened in Tier 2 cities, but, with the recent reverse migration due to the covid, there is now a huge opportunity in these cities for realty development. But unfortunately because of the lack of transparency in these smaller cities investors are extremely cautious. SWAMIH fund has come as a saviour in such a situation.” Kaushik Desai, Executive Director, Walton Street India shared, “SWAMIH fund has the support of the government and its guidelines are very different as compared to private funds which face a lot more challenges. In terms of the global investor’s interest, opportunistic foreign investors are keenly looking for prospects in distressed projects in India. The opportunities are there but come with challenges. It is hard to find the right promoter of the project that fits all the criteria for safe last mile funding. The key is to do a hard research before investing in a project.” NBFCS IN THE FUNDING ECOSYSTEM One of the reasons PE firms are expecting more opportunities in real estate is because Covid has exacerbated the liquidity issues of NBFCs despite government efforts. Sunil Rohokale, Managing Director & CEO, ASK Group expressed, “We started lending as First mile fund, wherein company’s management and promoter matters the most followed by the project location. A margin of safety for both is equally critical. However in 10 years’ time, we switched to the last Mile funding for safety of the capital. I believe many of the NBFCs were using significant short-term liabilities to finance long-term assets in the real estate sector and this led to a huge assetliability mismatch on their balance sheets. Currently, there are opportunities to provide last-mile financing to projects but, someone who has been reckless, whether it is the developer or the lender will have to take the haircut.” Dev Santani, MD – Brookfield Special Investments, Brookfield Asset Management concluded, “We have been active on the residential side for a while now. However we haven't built up a massive book and in a hindsight that is not a bad thing. Today because of the NBFCs going out there is a huge opportunity in the market. We have all realised that this so called debt is mostly equity. The issue we are facing is firstly the sector is in a lot of stress from an economic perspective. A lot of last mile financing opportunities don't see sales pick up as the customer confidence is lost. So I would say last mile funding is quite challenging when one is trying to make a significantly higher yield. Another issue is the lack of equity in the ongoing portfolio.”