The real estate industry in India offers promising and exciting investment opportunities. Supported by robust fundamentals, the country’s economy is on track to achieve a soaring growth trajectory. As a result, the country is expected to witness an urban transformation that will see many cities outgrow some countries in terms of population and GDP growth. It is this transformation that is fuelling an increased demand in the sector and driving the industry to grow. Real estate as an asset class is gaining preference among investors although traditional investment class like stocks and bonds do hold their position. Investors with a longterm horizon should consider it as an important asset class and make this an integral part of their portfolio. Because unlike other asset classes which are more prone to short-term fluctuations, real estate being a medium to long- term investment, it minimises the risk of shortterm fluctuations and also is less volatile in nature.
Real estate is not only tangible in nature but it also helps retail or individual investors to diversify the risk and generate decent returns in the long run. But there are a lot of apprehensions in the minds of the investors before making an investment decision in real estate mainly because of the very nature of the sector. The sector is not only interest rate sensitive and highly unorganised but at the same time the level of transparency in deals from the developers’ end historically has been low. Secondly only HNIs have the capacity to make multiple investments across geographies and diversify their risk. But retail investors lack that capacity. In addition to this, inadequate market knowledge about prices not only in other markets but also about the one in which the investor resides varies from location to location and hence it is a matter of concern for the investor. This is precisely where investing through Private Equity makes the difference. Real Estate funds are managed by professionals, who have the expertise in this sector. Their understanding of the sector is much stronger and concrete as compared to the investor on account of the market research and strong network that they possess. Funds adhere to stringent due diligence on the legal, technical and commercial aspects of the deal before forging a partnership with any developer. By making investments in real estate through a fund, an investor is assured of greater transparent practices not only between him and the fund but also in all the transactions that happen between the fund and the developer. One of the biggest advantages is that the investor knows the end use of his money while he is investing through the fund unlike when he is investing in real estate by buying stocks of realty companies. Given the current prices prevailing in markets like Mumbai and NCR, it is not possible for a large number of retail investor base to invest directly into real estate even though they want to. Such investors can definitely explore the Private Equity route to get into real estate wherein a ticket size could be as low as 20 – 25 lakhs. A fund makes deals at a pricing that may not be available to individual investors. Another major advantage is the diversification of risk posed by regulatory, political or any unforeseen events in a particular market. Real estate fund invests across geographies and help diversify the risk. There are stringent investment limits that a fund has to follows while deploying funds within a city, with a developer and his projects. It invests in properties across geographies and across development classes like residential, commercial, IT/ITeS, etc. thereby diversifying its geographic markets as well as the product related risks to a large extent. Source-TOI
