Real Estate Boom and The Role of Private Equity

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Author: Akansha Sharma

Akansha Sharma, an article writer, she has written many articles and press releases on travel, beauty, education, real estate, health & fitness.

Private Equity funds or PE Funds as they are better known, have their origins with individuals or other large funds such as pension plans, endowments, insurance companies, etc. who have large reserves of cash and are looking for an investment opportunity which gives returns in excess of the market rate of returns in investments in debt or shares of listed companies. The main attributes of such investors is a long investment horizon and the capability to maintain their funds in a non-liquid state for a time period spanning ten to fifteen years.

PE funds in India are mostly professionally managed by an investment group comprising of investment bankers and management professionals. Their chief areas of investments are small and medium sized companies with large requirements of money but without the wherewithal or market standing to raise the capital. Principal amongst these are real estate companies where the initial investment requires large inflows of money for purchase of land, architects’ charges, materials and labour for construction and payback periods normally begin from the completion of the project which usually takes five to seven years. To cater to this specific segment, real estate funds play a very vital role in financing the real estate company. They provide not only the initial impetus for purchase of land but also provide the funds for mobilising construction.

While some of such funds provide the finance only with predefined loan periods, many funds find it more profitable to be actively involved in every stage of the project such as locating the land, clearing legal encumbrances, deciding the type of building to be put up (for example, a combination of retail, residential and office space or a mall or purely residential), facilitating statutory clearances from government agencies, sourcing deals on procurement of raw materials and labour and finally helping to find buyers for the space. Many PE funds in India adopt the second approach because in the long run, it is far more profitable for the PE investors to maintain control over the usage of their funds.

Across the world, India is counted amongst the fastest growing economies. Coupled with a rapidly growing young middle class with an ever increasing disposable income, the market for real estate is a booming one in India. While until recently, the focus of real estate companies was towards housing development, they have found of late that a judicious mixture of retail, hospitality, commercial and residential space adds far more value to the investment than merely residential development. Accordingly, the principal focus of real estate funds is towards such developments. The investors also earn handsome returns on their investments leading to a win-win situation for all involved.

Akansha Sharma is an article writer, in this article she talking about PE funds India and real estate funds. She also writes for real estate India its growth.

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