The Indian real estate sector has been grappling with a funding gap for a long time, which is hindering its growth and development potential. However, in recent years, real estate Alternative Investment Funds (AIFs) have emerged as game-changers, revolutionizing the industry. Real estate-focused AIFs are SEBI-regulated investment vehicles that pool capital from investors and deploy it primarily in Indian real estate properties, providing a unique opportunity for both developers and investors.
bridging the funding gap
Funding gap has been a major roadblock in the Indian real estate sector, limiting the launch and execution of projects and hindering the growth of the sector. Real estate AIFs have emerged as a reliable source of funding, providing developers access to much-needed capital.
Read also: Real estate: NRIs look beyond major cities to invest in smaller Indian towns
According to recent industry data from the Securities and Exchange Board of India (SEBI), it is estimated that the assets under management (AUM) of AIFs in India are expected to reach Rs 6.9 trillion in 2022, up from Rs 1 trillion in 2017, a 7-fold increase. There is growth. Their growing popularity, as an all-encompassing growth investment vehicle, is not only limited to the real estate sector.
By taking advantage of real estate AIFs, developers can secure funding for their projects without relying solely on traditional financing options, such as bank loans or private equity. This funding opportunity empowers developers to accelerate project execution, acquire land parcels and develop high quality real estate assets.
benefits for developers
Real estate AIFs offer several benefits to developers, making them an attractive option for project financing. Firstly, these funds provide developers with flexible financing options that can be tailored to meet their specific needs. The customized structure of real estate AIFs allows developers to access funds at various stages of project development from acquisition to last mile completion.
In addition, real estate AIFs bring domain expertise to the table. The involvement of experienced fund managers helps developers optimize project management, increase operational efficiency and navigate regulatory complexities. Additionally, real estate AIFs facilitate collaboration between developers, allow for knowledge-sharing and create synergy within the industry.
Preferred investment vehicle for HNIs
The Indian real estate market has always been a preferred investment option for High Net Worth Individuals (HNIs) and Ultra-High Net Worth Individuals (UHNIs), and AIFs provide an attractive investment option to capitalize on the sector’s continued long-term growth.
However, investing in real estate has never been an easy task. Operational hurdles, documentation and asset management are complexities that investors have to deal with. Real estate-focused AIFs are emerging as an excellent investment option for HNIs looking to invest in real estate with structured and well-designed investment themes.
They offer several benefits to investors including transparent governance, portfolio diversification, tax-friendly structuring and hassle-free investment experience. AIFs invest in a variety of real estate assets across the country, providing access to unique investment opportunities.
Transforming Indian Real Estate Sector
The growth of real estate AIFs has had a transformative impact on the Indian real estate sector. These investments have injected much-needed liquidity into the market, revived stalled projects and revived investor confidence. With better access to capital, developers can focus on completing projects on time, thereby increasing the overall credibility of the sector.
Real estate AIFs also play an important role in promoting transparency and governance within the sector. The stringent regulatory framework associated with AIFs ensures compliance and accountability, reduces the risk of malpractices and enhances investor confidence. This increased transparency attracts investors, both domestic and foreign, fostering greater investor participation and boosting the sector’s growth.
Real estate AIFs add immense value to developers, investors and the overall economy. Overall, players in this domain should remain committed to providing investors with innovative and differentiated investment products that help them achieve their financial goals.
The author is a partner at Trivedi Capital. The views expressed are personal.
Disclaimer:The views expressed in this article are the author’s own and do not represent the stand of this publication.