The Indian real estate
sector that was once looked upon a safe investment option is now battling a
slowdown amid stagnating sales. The sector is also confronting funding problems
due to high rate of interest and also there is a shortage of funding from
foreign investors.
Many private equity
firms focused primarily on real estate are feeling the heat and finding it
tough to raise funds through foreign high net-worth individuals (HNIs) as well
as institutions. This is precisely because many India-focussed real estate
funds falter on returns.
Industry experts say
most PE firms, both domestic and international ones, have been unable to close
real estate funds if they are raising it from outside India.
Many private equity funds
had promised more than 20% internal rate of returns (IRRs) to investors during
the real estate boom of 2005-2007. But in real terms, they fell flat.
International realty funds, with investments in joint development projects in
India, are also finding it difficult to move out of the market.
Thus, the PE fund of a
major financial services firm that had raised around $2 bn (Rs 10,900crore) and
made around 27 investments across India is now unable to exit a project in
Chandigarh.
In yet another case,
the PE fund of a major Indian bank that had bought a majority stake in a South
Mumbai commercial property in 2007 for Rs. 200 crore is unable to fetch even
what they had invested.
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