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Real estate VC funds target 15-30 pc returns — Plan investments in residential, retail & IT/ITeS/BPO space

Kripa Raman

Mumbai , Nov. 11

AN INDICATION of the kind of growth that can be expected of the Indian real estate market may lie in the returns targets that the real estate venture capital funds have set for themselves.

"The target internal rate of return of these funds range from 15 per cent to as high as 30 per cent," says the latest quarterly India Property Investment Review from property consultants Knight Frank India.

This report lists 12 funds, apart from HDFC India Real Estate Fund, and estimates that these funds will invest about $1.2 billion into real estate stock over the next one year.

Since the policy change last year that allowed venture capital funds in real estate, some 14 such funds are in various stages of getting organised, according to real estate experts.

The rate of return targeted — between 15 per cent and 30 per cent — is an indication of the unpredictability and non-homogeneity of the Indian market, they said.

"There is no homogenous Indian real estate market. Every city or area could be a market in itself," said Mr Arun Goel, CEO, DHFL Venture Capital Fund.

"Our Fund cannot guarantee a return, but we think 20-25 per cent is achievable," he said of this seven-year fund, which has a corpus of Rs 350 crore (including a greenshoe option).

The real estate market is growing significantly, said Mr Goel, whose fund will invest in residential projects, and commercial space specific to the IT/ITeS and BPO industries.

Since most funds are planning investments in residential and retail projects and the IT/ITeS/BPO space, the growth rate of these industries can be used as a benchmark to the funds' returns.

HDFC's domestic fund of corpus Rs 1,000 crore has already identified projects in Bangalore, Pune and the National Capital Region, said a senior official. By year-end, around 20 per cent of the corpus will be invested, he said.

HDFC's India Real Estate Fund officials are not willing to talk about target returns, but they are spreading risks by investing in completed, development-stage and planning-stage projects.

Some of the other proposed venture funds, all close-ended, listed by the Knight Frank report, are ICICI-Tishman Speyer (India Advantage Fund-111), Ascendas IT Parks Fund (which will invest in IT space only), Kotak Mahindra Realty Fund, IDFC, Kshitij Venture Capital Fund (from Pantaloon which will invest only in malls and commercial retail space.

On whether such a rush of funds would lead to more speculation in real estate and drive up costs, Mr Goel said, "The maximum we see is Rs 3,000 crore invested in a year or two; this is a small amount compared to the investments the real estate sector requires."

At HDFC, he felt that speculation is happening in pockets anyway, with or without real estate venture funds. In Gurgaon and adjoining areas, he noted, plots are sold within a single day of being put up for sale. And some smaller cities are seeing appreciation of 40-50 per cent in pockets. With the right expertise one can identify the right projects for investment, he said.

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