Private Equity Funds Sell Homes Cheap To Gain Market Foothold
Shabana Hussain, New Delhi
Mint
Private equity funds are aggressively chasing the nascent revival in Indian home purchases by undercutting the more established realty companies such as DLF Ltd and Unitech Ltd, sometimes by as much as half the going rate.
The funds, which have tied up directly with landowners, are willing to sacrifice margins to push sales and make up for being unknown to prospective homebuyers.
South Asian Real Estate Group (Sare), First Indian Real Estate Capital Fund Pvt. Ltd, or FIRE Capital, and Red Fort Capital have launched projects in locations such as Gurgaon, Noida, Ghaziabad, Indore and Bangalore.
Crescent Parc, a company promoted by Sare, launched Royal Greens two weeks ago in Sector 92 in Gurgaon at Rs1,397 per sq. ft. Royal Greens will have low-rise apartments of ground plus four floors with amenities such as a gym, a swimming pool, a school and a hospital.
In comparison, DLF’s New Town Heights, the company’s affordable housing project in the adjacent sectors of 90, 91 and 86, is priced at Rs2,150-2,250 per sq. ft, and Raheja Developers Ltd’s Navodaya in Sectors 92 and 95 is priced at Rs2,475 per sq. ft.
The funds say they want to establish a brand name for themselves and attract buyers in a market where demand has just started to pick up.
FIRE Capital, a $250 million (around Rs1,220 crore) real estate focused fund, has launched integrated township projects in Indore, Nagpur, Bangalore and now plans to launch in Chennai.
In Bangalore, for instance, FIRE Capital has gone in for a soft launch of villas at its project, The Empyrean, on the outskirts of the city near Whitefield at Rs2,000-2,500 per sq. ft whereas the market rate in that location for a similar project is Rs4,000-5,000 persq. ft, said Om Chaudhry, founder and chief executive of FIRE Capital. “Initially, we had to do penetrative pricing because the market didn’t know us.”
Margins in such projects are either low or negligible. “But even if I don’t make too much profit, I need to establish a name,” said Chaudhry.
Once a brand name is established with little or no margin, prices can be increased gradually, he added. “That strategy is working for us. We now have an established brand name in Indore.”
In the case of Sare, a $400 million fund, the company said it consciously chose a lower price because that is the rate at which the market would have accepted a new developer. Sare claims to have sold 180 of the 360 apartments in Royal Greens at Gurgaon.
Sanjay Sharma, founder of Gurgaonscoop, a real estate portal, said this is the first time he has seen a developer offer such low prices relative to the market. “The location where Royal Greens is coming up can easily command a price of Rs1,800 per sq. ft,” he said. “It is a knock off of at least 20 percent of the actual price.”
The big-name developers have launched affordable housing projects by reducing the size of apartments, with the price per sq. ft still on the higher side. For instance, Unitech’s affordable housing project, Unihomes in Sector 117 of Noida, costs around Rs2,960 per sq. ft, but the overall cost of the apartments range from Rs17-30 lakh as they are sized between 580 and 990 sq. ft.
If prices are too low, developers may slack off on some projects, said Sharma.
“When the margins are so low, eventually it might make sense for a developer not to complete a project and execute another one that gives profits,” he added.
Red Fort Capital recently picked up a 50 percent stake in Lotus Boulevard, an integrated township project in Sector 100 in Noida being developed by 3C Company, a New Delhi-based developer. The project will have 3,000 residential units and according to Red Fort, around 1,500 apartments have already been sold.
The apartments of between 987 and 1,850 sq. ft are priced at Rs2,825 per sq. ft. “Apartments cost less because of a combination of smaller size and reduced price per sq. ft,” said Subhash Bedi, managing director of Red Fort.
Shabana Hussain, New Delhi
Mint
Private equity funds are aggressively chasing the nascent revival in Indian home purchases by undercutting the more established realty companies such as DLF Ltd and Unitech Ltd, sometimes by as much as half the going rate.
The funds, which have tied up directly with landowners, are willing to sacrifice margins to push sales and make up for being unknown to prospective homebuyers.
South Asian Real Estate Group (Sare), First Indian Real Estate Capital Fund Pvt. Ltd, or FIRE Capital, and Red Fort Capital have launched projects in locations such as Gurgaon, Noida, Ghaziabad, Indore and Bangalore.
Crescent Parc, a company promoted by Sare, launched Royal Greens two weeks ago in Sector 92 in Gurgaon at Rs1,397 per sq. ft. Royal Greens will have low-rise apartments of ground plus four floors with amenities such as a gym, a swimming pool, a school and a hospital.
In comparison, DLF’s New Town Heights, the company’s affordable housing project in the adjacent sectors of 90, 91 and 86, is priced at Rs2,150-2,250 per sq. ft, and Raheja Developers Ltd’s Navodaya in Sectors 92 and 95 is priced at Rs2,475 per sq. ft.
The funds say they want to establish a brand name for themselves and attract buyers in a market where demand has just started to pick up.
FIRE Capital, a $250 million (around Rs1,220 crore) real estate focused fund, has launched integrated township projects in Indore, Nagpur, Bangalore and now plans to launch in Chennai.
In Bangalore, for instance, FIRE Capital has gone in for a soft launch of villas at its project, The Empyrean, on the outskirts of the city near Whitefield at Rs2,000-2,500 per sq. ft whereas the market rate in that location for a similar project is Rs4,000-5,000 persq. ft, said Om Chaudhry, founder and chief executive of FIRE Capital. “Initially, we had to do penetrative pricing because the market didn’t know us.”
Margins in such projects are either low or negligible. “But even if I don’t make too much profit, I need to establish a name,” said Chaudhry.
Once a brand name is established with little or no margin, prices can be increased gradually, he added. “That strategy is working for us. We now have an established brand name in Indore.”
In the case of Sare, a $400 million fund, the company said it consciously chose a lower price because that is the rate at which the market would have accepted a new developer. Sare claims to have sold 180 of the 360 apartments in Royal Greens at Gurgaon.
Sanjay Sharma, founder of Gurgaonscoop, a real estate portal, said this is the first time he has seen a developer offer such low prices relative to the market. “The location where Royal Greens is coming up can easily command a price of Rs1,800 per sq. ft,” he said. “It is a knock off of at least 20 percent of the actual price.”
The big-name developers have launched affordable housing projects by reducing the size of apartments, with the price per sq. ft still on the higher side. For instance, Unitech’s affordable housing project, Unihomes in Sector 117 of Noida, costs around Rs2,960 per sq. ft, but the overall cost of the apartments range from Rs17-30 lakh as they are sized between 580 and 990 sq. ft.
If prices are too low, developers may slack off on some projects, said Sharma.
“When the margins are so low, eventually it might make sense for a developer not to complete a project and execute another one that gives profits,” he added.
Red Fort Capital recently picked up a 50 percent stake in Lotus Boulevard, an integrated township project in Sector 100 in Noida being developed by 3C Company, a New Delhi-based developer. The project will have 3,000 residential units and according to Red Fort, around 1,500 apartments have already been sold.
The apartments of between 987 and 1,850 sq. ft are priced at Rs2,825 per sq. ft. “Apartments cost less because of a combination of smaller size and reduced price per sq. ft,” said Subhash Bedi, managing director of Red Fort.
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