FINANCE & FUNDING REDEFINING REAL ESTATE INVESTMENTS
Prashant Gooty, Head - Bangalore & Associate Executive Director, Land & Capital Markets, CBRE India initiated the conversation saying that real estate has come a long way from being a family business to more corporate structuring. “Real estate is now exposed to institutional finance which has been a big change over the past few years. Real estate is now looked upon as a preferred investment class because of RERA and associated regulations that have come up.” Prashanth Ramdas, Partner, Banking and Finance, Fintech, Khaitan & Co. stated, “The legislation by the way of RERA in 2016 was a definite game changer in terms of how India as a real estate market became even more viable globally given the way laws laid a broad framework within which the developers can function in the industry. A lot of litigations had been going on in the sector due to stalled, delayed projects etc. RERA gave a formal grievance redressal for the consumers, state and central level authorities, setting up timelines for the builders and compensation mechanisms that have raised the confidence of investors and end users in the sector. Mallanna Sasalu, COO, Provident Housing Ltd added, “The real estate has attracted around $30 billion foreign private equity money, most of which has been invested in buying cash flows from yielding assets like commercial, and retail assets. In the early 2000’s the FDI money used to be invested as development money which involved risks related to land, approvals, delivery, construction, sales etc. Today that money has dried up. Nevertheless, there is a lot of debt money which is available for the right kind of developers.” Abhijit Banerjee, Co-Founder, Upwisery shared, “Over the last 12 months we have seen a major realignment in the way the capital allocation is done globally. Fed rates have been increasing in the US, the war in Europe and China supply chain issues have led to reallocation of capital. There is no other country parallel to India which has the same depth and the political stability in terms of being able to take a large amount of capital and earn a high return. These two factors will continue to ensure that we attract a large amount of capital irrespective of the source.” Srinivasan Gopalan, Chairman, ArisUnitern Pvt Ltd & Co-Founder, ArisInfra Solutions Pvt Ltd agreed, “We are in the best of position right now, SEBI has now allowed Micro REITs and this will further democratise the real estate sector making it accessible to even small retail investors. We will have an investable surplus. This will not only be on the commercial side where we see a lot of strata but there will be small money chasing the residential real estate. I am extremely positive about these things happenings.” Jai Baid, CEO, VCiti shared his views, “I see real estate from a 20-year point of view. In the Proptech space, we have not even scratched the surface. There are four layers to a transaction in real estate - discovery, negotiations, transaction and navigation. We are still in the discovery part. A lot of b2b start-ups have come up in terms of property portals, now we have 3D Max, VR start-ups and a couple of fintech companies that helped real estate transactions even during the Covid. But still the fintech gap is big. Until we cover all the touch points of discovery, negotiations, transaction and navigation, the prop tech journey will not be complete.” CAPITAL COST & AFFORDABILITY FOR BUYERS Mallanna Sasalu said cheap capital is not available to developers and it is associated with risks. “The cheapest capital available to developers is the homebuyer’s home loan. The developer launches the project and sells and the construction is more or less funded by the customer through the EMIs. Thus, India is the only country where the end-users finance their own construction. That is the residential side of it. In commercial real estate there is no money available for buying the land. There are some NBFCs who are lending money for buying the land, but at the same time that’s expensive money and the numbers do not match at all. The Lease Rental Discount (LRD) method is the cheapest capital available. If you have the private investment method that is coming in taking the business risks along with you including the leasing risks, approval risks, and any other statutory risks, 20 or 21% or any amount still looks cheaper.” Prashant Gooty stated,” Public money through IPOs being launched by realty firms gives them the equity capital which helps them grow. The cash flow cycle and the way the market perceives especially the public market from an equity return perspective month-on-month and quarter-quarter, growth is cyclical compared to any other sector.” Abhijit Banerjee talking about IPO added, “Real- Estate firms are evolving as structured businesses in many parts of the country and are attracting institutional capital. You have to be in the top of the league to be able to be listed as an entity. But, unless there is a predictability of cash flows, stock markets can be a disaster. A lot of compliance and mind shift is required. Many companies thrive outside the ladder of public money." Srinivasan Gopalan- Technology is playing a huge role in fractionalizing debts and there is a lot of capital which is with people and the working class. As long as you keep the ticket size small it is easier for people to invest. It is important to give people the right product when people are investing. Due diligence and governance is required in the offering. There is a huge market there. India has more than 130 Crore people and Rs 1 from each means more than Rs 130 crore. Capital can come in, whether it will be cheap capital or not we need to wait and see the demand and supply.” Jai Baid commented, “Fractionalisation has been there for a while. There are about 2-3 crore people between 20 lakhs to 40 lakh salary bracket and want to have commercial real estate as a part of the ir portfolio. So whatever REITS came out, they were absorbed. Many players are also democratising start-up companies. We should not be shocked in the next 5-7 years a private AUM-owned start-up may cross the valuation of the top 10 builders. We are moving towards democratisation and block chain. We have a few players delivering Rs 25-50 lakh ticket size but addressable market is more than Rs 100 billion. Non-CRE real estate such as student housing, warehousing, co-working, etc is Rs 150 billion dollar market.” Prashanth Ramdas concluded, “We are in a healthy position compared to other Asian real estate markets but, investors are choosy about what deals they want to get into that may include asset diligence and ESG perspective. Investors globally are looking at what is your carbon-neutral footprint on each project and specific ESG diligence being done to ensure there are no implications associated for the investors.” Today, most of the family offices, financial institutions, or pension funds are allocating 15-20% towards India. This is across asset classes. FDI in India last year was 83.5 billion USD, almost 2X of 5-6 years ago. Remittances are at an all-time high. From April to September India attracted $2.8 billion PE in the real-estate, which is a 40% increase on the corresponding period in the prior year. Equity money is coming in terms of finished assets in the real-estate sector. In the Greenfield assets, we are seeing more of secured debts and structured lending happening. One more factor in the micro-space is the emergence of REIT and large companies like Blackstone, Brookfield etc. investing in REITable assets and making easy exits. The stock market is based on the valuation of the companies. The cash and profit generated and multiples of that are considered for valuation. Real estate does not work like that. In some quarters revenues are recognised once the project is delivered but in some quarters a ready project cannot be handed over due to some statutory reasons, leading to negative results in the books. Having said that a listed company has advantages in terms of the way capital markets look at you, but it will bring a number of constraints because public money is involved in it.
Tags : finance funding real estate investment Prashant Gooty Head - Bangalore & Associate Executive Director Land & Capital Markets CBRE India Prashanth Ramdas Partner Banking and Finance Fintech Khaitan & Co Mallanna Sasalu COO Provident Housing Ltd Abhijit Banerjee Co-Founder Upwisery Srinivasan Gopalan Chairman ArisUnitern Pvt Ltd & Co-Founder ArisInfra Solutions Pvt Ltd Jai Baid CEO VCiti