Fire Capital, the first private equity fund focused on the Indian real estate sector, plans to raise $100 million to invest in housing projects, as banks turn away from the debt-ridden sector leaving builders to fall back on PEs.
The firm will raise the capital primarily from its existing investors in the US to invest in tier-II and -III cities in states like Haryana, Punjab, Rajasthan, its CEO Om Chaudhry has said.
“There is an acute shortage of residential units, as India would require at least 30 million homes by 2012 to meet the existing housing need. We want to reduce some bit of the demand and supply gap in small towns and cater to the middle income segment,” he said. A majority of the homes needed are in the mid and lower income group.
Fire Capital, established in 2004, raised its first fund worth $121 million in 2006, with an ability to invest around $250 million through the co-investment commitments of its investor base. The fund is almost exhausted. It is raising the additional amount to built 25-50 acres with each builder in small towns this fiscal year.
The PE fund typically works with local developers rather than large realty firms in tier-II and -III cities and takes majority equity holdings in residential projects. It selects builders to primarily get the land and then forms joint ventures where it acquires majority stake. The fund receives its return on investment once the project is sold. So far, it has invested in cities like Indore, Nagpur and Jaipur, besides outskirts of Bangalore.
The real estate sector in the country was one of the biggest casualties of the global economic downturn in 2008-09 as buyers kept away from the market and banks became skittish about lending. Although recovery in the sector is gaining pace, the amount of debt in the industry is a concern.
According to industry estimates, real estate firms have built up a total debt of about 75,000 crore. Property developers are increasingly approaching private equity firms to complete both existing and new projects besides repaying a part of their debt. Realty firm Ansal API recently raised 200 crore from Red Fort Capital to build a residential township in Gurgaon.
