HDFC Property Fund and Motilal Oswal Real Estate, which are raising new real estate
funds, are looking at buying apartments and projects at lower valuations as property developers struggle with lower sales and liquidity.
HDFC Property Fund is raising a $500-million (Rs 3,600 crore) private equity (PE) fund. It is looking to buy ready residential inventory from developers, said sources. “They want to invest in these, rent for two to three years and then sell. The valuations are very attractive now,” they explained.
The fund is in talks with Bengaluru-based developer Puravankara to buy ready inventory worth Rs 650 crore. It has bought 23 apartments of the Lodha group in the latter’s Hyderabad project, the sources said.
E-mails to HDFC did not elicit any response, while a Puravankara spokesperson denied any talks.
Due to high prices and demand slowdown, the housing market has seen huge inventory pile-up. According to estimates, there is a ready residential inventory of Rs 90,000 crore in the country.
“It is an innovation in the marketplace. Residential yields will normalise with this model. Residential yields are low now,” said Shobhit Agarwal, managing director at Anarock Capital.
Earlier, JP Morgan Asset Management and Piramal Fund Management also had a bulk buying apartment fund, which used to buy apartments at a discount to the market price. While Apollo Global Management has bought the real estate
fund management platform of JP Morgan in this country, Piramal has moved on to doing mostly lending and joint ventures with global fund managers.
Another PE firm, Motilal Oswal Real Estate, is looking to close a Rs 1,200 crore property fund by December. It is looking at buying four or five distressed projects in Chennai, Pune and Bengaluru, said Sharad Mittal, chief executive officer. “There is a value buying opportunity. We are looking at opportunities where existing developers have to exit and a fund like us can come along with a large developer," he explained.
Capital, buyers and lenders are currently channelising towards the top 15 per cent of the real estate
market, leading to consolidation, he added.
In the top nine cities, says PropEquity Research, there has been massive developer consolidation, with over half of all developers that existed in 2011-12 leaving the market by 2017-18.
Consolidation of developers in Gurugram (Gurgaon), Noida, and Chennai has been to the tune of 70 per cent since 2011 to date. A similar reduction of 65 per cent was seen in Kolkata and Bengaluru over the past six years respectively. The total number of projects launched across the cities also declined substantially during this period.