As the property markets continue to boom, many investors are coming with bagsful of money to invest in the sector. According to one estimate,
investors are ready to invest around Rs. 18, 000 crores per annum in the real estate sector for the next three years. Real-Estate remains one of the most attractive investment alternatives. The love for buying real estate among Indians is well known. The fantastic returns it offered in the last couple of years is what drove the recent frenzy.
The sector has given an unprecedented return of 30-50 percent, compounded annually for the last two years. Unlike in 1996-97, when the bull phase continued
for around a year, this time the prices have continued to
firm up for over the last two years. This has lured many investors to jump on to the bandwagon to invest in the real estate market. At the same time, the investment scenario in real estate has matured in the last six months. Many banks and institutions like HDFC, ICICI Bank and IL&FS have floated venture funds to raise money from long-term investors. According to market resources some of the venture funds to invest real estates market, are expecting returns in the range of 20-30 percent per annum. This could be termed as fantastic return if you compared it with the six percent returns that banks fixed deposits and other debt instruments give. In fact, the returns provided by the real estate sector are better than even long-term returns offered by stock markets. A senior fund manager said the high returns were possible as they would invest in a project in the development stage.
......................................................................................................................................... Back to Top
Instead of buying developed residential or commercial properties, the funds are utilized in investments at development stages of projects.
They would take equity in companies that are developing the
projects. Once the project is completed and sold, they would share the profits along with the promoters. As the demands for quality space are growing in the cities, many builders have launched new projects. But this needs huge investments in the sector. As banks are not financing the construction of projects directly, many venture funds have entered the market to grab the new opportunities. According to reliable source, at least two dozens venture funds have been floated in the last couple of months. Some of the leading Funds are ICICI Venture Fund of ICICI Bank, HDFC Venture Capital of HDFC Bank and State Bank of India, Kotak Mahindra Real State Venture Fund of Kotak Mahindra Bank and Fire Capital of Feed back Venture. Besides some
builders have also joined the bandwagon.
The size of the funds is also very large. For example ICICI Venture has already raised
over Rs. 1000 crores .It is planning to raise similar amount in the next couple of months. HDFC Venture has also raised over Rs. 1000 Crores. Kotak Mahindra Venture fund was floated to raised Rs. 500 crores. Builders are also raising big size funds.
The minimum amount one can invest in such fund is in the range 0f Rs 5 crores. However more then one individual can pool in money in a company and invest in the fund. The lock in period in such funds is normally three years. In many cases it is five years also. In total according to an estimate, all the venture funds put together will raise around Rs.
18000 crores.
......................................................................................................................................... Back to Top
A senior banker said the demand would be much higher than what they were raising presently from the
market.
In IT and IT enabled services sectors alone ,the country
would be in the range of 20-25 million square feet per annum
according to a Merrill Lynch report. That means in the next
three years the additional space required by the sector
would be around 60 million square feet on the basis of the
lower side of estimates. Now for every 100 square feet space
on an average one person would be hired. That means in the
60 million square feet of space the sector would hire an
additional six lakh people. The source said on an average every one additional job creates a demand for 1000 square feet residential space. That means that IT sector alone would create demand for 600 million square feet of residential space. Therefore the total demands of real estate due to IT Sector would be in the range of 660 million square feet.
The average cost of real estate is around Rs. 2000 per square feet. At this price the total Demand of real estate created by the IT and ITES sector in the next three years would be Rs 132000 crores. This is only
the IT sector .If this work out the estimates for other sector figure would go much higher. Therefore the source maintained that the market has the capacity to absorb at least Rs 25000 crores per annum. He said that the margin in the real estate sector is in the range of 25-30 percent. If you could implement a project fast the sector can give an annual return of over 20 percent. As the economy is booming, demands are likely to further increase. Therefore, the returns from the sector will continue.
......................................................................................................................................... Back to Top
