Over the past 12-18 months, HNI investors have been slowly returning to real estate as an investment option, according to private wealth managers. However, given how they burnt their fingers back in 2008, this time around, the investors are more interested in lending to developers rather than buying equity.
More structured debt now
Abhijit Bhave, CEO, Karvy Private Wealth, said he’s observing a selective return of rich individual and institutional investors to this asset class. “But now, the investment is increasingly coming in through rental yield funds. Earlier, around 2007 for instance, investors bought pure equity in real estate projects or created a special purpose vehicle for these investments. Now, it’s more structured debt with an equity kicker involved,” he added.
“To put it in layman’s language,” Bhave explained, “a private equity fund may lend money to a builder at say 18-20 per cent interest. That’s the debt component.
“Then, if the plan was to sell, say 100 apartments at ₹20,000 a sq. ft. and he ends up selling them at ₹30,000 a sq. ft., the fund earns a part of this profit as well — that’s the equity kicker.”
