PEs homing in on affordable buys

PEs homing in on affordable buys
The Economic Times, May 26 2009, Page 5

Sanjeev Choudhary & Paramita Chatterjee, ET Bureau, NEW DELHI

The new wave of launches in the affordable housing segment is attracting the attention of private equity (PE) players, which had for more than a year shunned the real estate sector struggling with diminishing sales, tight credit and clouded economic forecasts.

Although PE firms are yet to strike any fresh deal in the realty space, which hit a downturn last year, funds such as Red Fort Capital Advisors and Kotak Realty Fund are scouting for opportunities in low-cost and mid-income housing projects.

“The top-end category in the real estate space is saturated. Several firms are coming up with affordable housing projects ranging from Rs 3 lakh to Rs 10 lakh across India and we are keen to invest in them,” said Red Fort Capital Advisors director GB Singh.

The firm plans to invest 75% of its Rs 400-crore corpus in affordable housing over the next two years and is close to clinching two deals in the NCR region.

Red Fort Capital’s current portfolio includes investments in Prestige Group (Bangalore ), Godrej Properties (Kolkata) and Indu Group (Hyderabad). Kotak Realty Fund CEO S Srinivasan is looking to close some deals in low-cost and mid-income housing projects over the next few quarters.

Mr Srinivasan, who manages $800 million in asset, struck his last transaction 16 months ago. “Now the valuations have come down and the gap between developers’ and our expectations has narrowed,” he said.

The four-year realty boom ending in 2007 saw demand for houses, offices and mall spaces surge as companies expanded and consumers, encouraged by rising incomes and easier access to credit, bought homes. A strong demand also saw home prices going up almost three times and developers shifting focus to high-end homes lured by higher margin.

But a downturn, caused by poor investor sentiment, sky-high property prices and high interest rates, has forced developers to focus on low-priced homes.

“Private equity players are interested only in affordable housing these days. No one wants to invest in high-end housing projects or commercial projects these days,” says Unitech MD Sanjay Chandra, who has been negotiating with a couple of PE funds for middle-income housing projects.

Recently, Tata Housing’s launch of low-cost residential project near Mumbai received tremendous response. Many other players, including Raheja Developers, Unitech, Omaxe, Gaursons and BPTP have either launched low-cost housing projects or are in the process of launching them.