By: Om Chaudhary, CEO, Fire Capital Fund
It has been a difficult market to be in as a developer. Rising interest rates have impacted the customer interest in new properties moderating the flow of new funds and in addition to that high inflation and rising commodity prices have increased substantially the delivery cost for existing projects. Saddled with pressure to deliver on their previous commitments and fraught with balance sheet liabilities due to financial imprudence, developers are desperately seeking new channels of money.
Traditional funding channels such as banking, public markets have largely become out of reach as financial institutions do not want to increase their already high levels of exposure and public market listings in real estate have performed rather poorly.
With a long term play in mind Private Equity players are keen to capitalize on this need gap. According to reports PE funding into real estate has gone up from USD 480 million in Q1 2011 to USD 504 million in Q2 2011, which are at significantly higher levels when compared to figures for the same period last year.
Professional investors look at combination of three key factors, market opportunity, valuations and sentiments. Long-term opportunity in real estate sector exists and is in the same bracket as the other unfulfilled fundamental needs such as healthcare, education and infrastructure. There exists a huge supply deficit which the country faces today. National Housing Board estimated a shortage of 25 million homes by 2012-13.
