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Wells Fargo’s former India realty investment team launching residential funds

1 Comment   |  November 13, 2014

Capitedge India Investment Advisory, a realty fund and asset management firm floated by six former members of Indian realty team of American banking giant Wells Fargo, is coming out with a residential properties-focused fund in India.

This would mark its first fresh fundraising exercise after floating an independent investment advisory firm, which is also managing the remaining assets of Wells Fargo after it shut operations in the country last year. While the founding partners are closely associated in operations, Hiral Soni is driving the domestic fundraise and investment strategy, as per the company website.

She was previously with Marvel Realtors and had later also set up a boutique investment banking firm catering to real estate and allied debt and equity syndication to M&A, land transactions, etc.

The proposed fundraising plan was first reported by Mint which said the firm is floating two funds with a total target corpus of up to Rs 300 crore. It added the proposed funds will invest in top five cities through both equity and debt structures.

The report added that it would look at a third domestic fund next year.

Capitedge team is led by Saandip Kundu and comprises Ananda Bhattacharya, Raadha Kundu (Saandip’s wife), Prashanth Shetty, Priyank Gupta and Hiral Soni.

Founder and managing director of Capitedge, Saandip has over 16 years of real estate financing and mortgage experience. At Wells Fargo he was responsible for building the franchise and steering the investments.

Prior to joining Wells Fargo, he has worked with LIC Housing, ICICI Bank (Product Head) and Standard Chartered Bank.

This development comes almost a year after Wells Fargo shut its real estate investment unit in India, as first reported by VCCircle.

Wells Fargo was exposed to Indian realty space through Wachovia which it acquired in 2008. Wachovia entered the Indian market in 2006 and started investing across deals in the realty space. In the aftermath of the financial meltdown in 2008 and Wells Fargo buying out Wachovia, the rechristened firm did not make many moves besides managing the existing assets.

It recently exited an old but rare entity level investment in a public-listed Indian real estate developer by selling its entire holding in Gurgaon-based Vipul Ltd with a huge haircut.

The firm had around half a dozen investments and has exited most of them.

Its other previous investments include a project of Hiranandani Group in Chennai, Wadhwa Group’s project in western suburbs of Oshiwara in Mumbai, Vijay Raheja’s Bangalore-based project Pebble Bay and a project by Vatika Group.

Real estate investment fraternity has seen launch of a bunch of new ventures by former executives of realty PE firms.

Mumbai-based financial services company Centrum Capital has teamed up with the former head of property fund Indiareit, Ramesh Jogani, in his real estate private equity company, India Property Advisors. In another such case, Amit Goenka, who moved out of the real estate private equity arm of Essel Finance a year ago, has set up his own venture called NIFCO and is raising two realty funds with a corpus of Rs 800 crore.

Source: VC Circle



HDFC Property Fund raises $250 mn via offshore fund

Add comment   |  July 21, 2014

Bangalore/Mumbai: HDFC Property Fund, the private equity arm of Housing Development Finance Corp. Ltd, has raised $250 million (around `1,500 crore today) through an offshore fund. It hopes to raise another $150 million by the end of the year, said a person directly familiar with the development who did not want to be named.

On Friday, HDFC Property Fund informed the BSE that it had raised the capital through its second international fund, saying “the recently closed fund will focus on investing primarily in residential property developments in major cities across India”.

The cumulative assets under management now exceed $1 billion, the statement added.

The new fund, which started raising capital in 2012, had targeted a corpus of $500 million. But it has raised only $250 million so far, and decided to do a first close and start the process of investing before attempting to raise another $150 million, said the person cited earlier.

Typically, funds that aim to raise a large corpus raise a certain amount of capital and announce a first close, after which they start investing in deals.

HDFC Property Fund had last raised $800 million through Hiref International Llc, an offshore fund, in 2007.

Its new offshore fund will start investing the capital it has raised and will invest a maximum of `240 crore in each transaction. It will invest in Bangalore, Kolkata, Delhi-National Capital Region (NCR), Pune and Mumbai.

The fund will invest in residential projects and is expecting an internal rate of returns (IRR) of 23-24%.

“We will do structured investment with a portion of equity in these investments,” the person said.

Of the $250 million, the fund has already committed `800 crore across a few deals in Mumbai, Pune and Bangalore.

One of these is the Vrindavan Tech Village project in Bangalore, which is being developed by realty firm Embassy Property Developments Pvt. Ltd and where Blackstone Group Lp is an investor.

HDFC Property Fund will invest around `240 crore in the 30-acre residential component of the project, said a second person familiar with the transaction.

HDFC has raised the offshore fund in difficult capital-raising conditions when global investors are wary of putting their money in the Indian real estate market.

Funds raising offshore capital are, in fact, finding it far more challenging compared with domestic capital, which is still easy to come by.

Financial services firm ASK Group, which plans to raise a $200 million real estate offshore fund, has raised $50 million from global investors on its own and has hired Cushman and Wakefield as a placement agent to help raise the remaining $150 million.

“This (HDFC) fund raise is a sign that foreign investors are back looking at India and they are ready to give capital to Indian funds. The expectations from the government is very high and investors are starting to re-invest in India,” said Ambar Maheshwari, managing director-corporate finance, at property advisory Jones Lang LaSalle India.



Reserve Bank Scheme to Allow Ownership of Property Abroad

Add comment   |  July 21, 2014

KOCHI: You have got some disposable amount, and want to own a real estate asset abroad. Now, it is possible as the Reserve Bank of India (RBI) allows resident Indians to remit money abroad for the purchase of immovable properties.

According to a new RBI directive, banks are allowed to remit up to US$125,000 (around Rs 75 lakh) every financial year for any permitted current or capital account transaction, or a combination of both. The money can be used for purchasing immovable property outside India.

Financial experts point out that the new norms might be helpful for the state as it would be easier for Keralites to spot properties due to their significant overseas connection. “The RBI’s decision to allow resident Indians to acquire immovable properties outside India is encouraging. Real estate has always elicited immense interest among Indians. So, relaxation of the norms will encourage them to remit more money outside the country.

The income from such properties will then find its way back to the Indian economy regularly, adding to the foreign exchange reserves,” said Promoth Manghat, vice-president, Global Operations, at UAE Exchange. The Liberalised Remittances Scheme (LRS), notified by the RBI, allows residents to acquire and hold shares, debt instruments or other assets outside India without the prior approval of the RBI. In August last year, the RBI had reduced the ceiling from US$200,000 to US$75,000 per person in a financial year.

“Real estate prices are yet to revive in many parts of the world, except in a few places. The new RBI norms came at the right time. Keralites, who have a considerable amount of disposable money, can now look at foreign countries to buy properties,” said G Sanjeev Kumar, financial advisor and managing director at Progno Financial Planning Systems Pvt Ltd.

“Though the limit prescribed by RBI is small Individuals in Kerala can now own properties over a period of time,” said Arun Kumar, a lawyer practicing in UAE.



Will General Budget Fuel the Real Growth Engine?

1 Comment   |  July 1, 2014

The intuitive habit of drawing macroeconomic conclusions (about India) from the corporate feedback (and vice versa) is fraught with risk. After all, only half of India’s GDP and 10% of India’s employment are in the formal sector. Further, only a fraction of the formal sector is listed.” This is not any Swadeshi ideologue speaking. This is what the Asia Pacific/India Equity Research paper of Credit Suisse titled “India’s better half: The Informal Economy” says about the most unique aspect of Indian economy. The paper points out that corporate sector accounts for only one-fourth of the national capital formed – the share of listed corporates in it is even less, just 13%. Again corporate sector generates only 15% of the national consumption – the share of the listed corporates in it is just a fraction, just 4%. The Credit Suisse actually compares the corporate sector, which is the celebrity segment of the national economy since 1991, to the tail that “cannot wag the dog”. The Credit Suisse’s study bares the truth that the star corporate sector in India is just the tail – a fact others were too afraid to say, like in the popular Danish fairy tale of “Emperor’s New Clothes” where every one saw the king without clothes but was afraid to tell the truth.

Informal is not illegal

When the Credit Suisse study dismisses the formal – read corporate – sector as marginal what does it find as the core of the Indian economy. The title of the study itself says it is the informal economy of India. In economic discourse informal economy is not a complimentary term. A World Bank study talks of two kinds of informal economy: one survival activities: casual jobs, temporary jobs, unpaid jobs, subsistence agriculture, multiple job holding and two unofficial earning strategies unregistered business for tax evasion, avoidance of government or institutional regulations. But the Indian informal sector is neither. Credit Suisse says that the Indian informal economy is not contraband. It says: “Unlike in the developed economies where informality is purely a deliberate choice to avoid taxation or regulations, in India it is more structural: a reflection of the lack of development and limited government reach.” This is significant. The informal economy in India should carry no stigma. Yet the media, elite thinkers and economic experts in India look down upon the informal economy in India like it is viewed in the West. This is one of the reasons for the mental block against this most productive segment of the Indian economy.

Non-corporates employ 84% of

What is informal economy in Credit Suisse is the non-corporate sector in Indian dictionary. What is the size of the Indian non-corporate sector? Credit Suisse study says that it constitutes 84% of the non-formal employment in India. How about other countries. It is about 4-6% according to World Bank in ‘Developed’ nations. In developing Turkey it is 31%, South Africa 33%, and Brazil and Thailand 42%. The Credit Suisse study says: “India’s informal GDP, i.e., economic activity by unincorporated enterprises, is half of total GDP, among the highest ratios in the world.” Three significant facts emerge now. First, in developed nations, the informal economy escapes the state; in India the state has not reached it. Second, in developed nations, it is a marginal player; in India it is the main drive. Three, despite the obvious differentials the Indian economists and policy makers, imitating the West where it is marginal, hate the non-corporate sector and are working to wipe it out. The question is whether they can wipe it out?

Staggering Size

The size of India’s non-corporate sector is staggering. The National Sample Survey Organisation (NSSO) Survey 2011 says that there are 57.7 million non-corporate business units excluding those in the huge construction sector. Seven out of ten of them are unregistered. The non-corporate units have almost doubled since 1998. The NSSO says that 85% of them “Own Account Enterprises” (OAE) – meaning self-employment units and the rest are “Establishments” employing outside labour. Here is the picture of this core sector in brief. The aggregate value addition by these units is `6.28 lakh crore – 70% of it in rural areas. Value addition per unit is not trivial. It is `1.09 lakh. And value addition per worker is `58,000 and per hired worker is ` 47,000, which equals the average per capita income of India in 2009-10 and higher than the rural per capita income. They employ 108 million – rural 53 million. The units do employ capital that is not insignificant. The value of fixed assets per unit is `2 lakhs. A fourth of these units is engaged in manufacturing, more than two thirds in retail trade and services. A majority of them operate in rural areas, the most difficult terrain for the government to reach. During the liberalisation period this sector grew faster than the organised sector whose employment came down from 8% in 1991 to 7% in 2011

OBC SC ST Entrepreneurs

The most significant part of the story is that the non-corporate sector is dominated by disadvantaged sections of Indian society – the Other Backward Castes (OBCs) Scheduled Caste (SCs) and Scheduled Tribes (STs). A study Caste and Entrepreneurship in India by Lakshmi Iyer Tarun Khanna Ashutosh Varshney Harvard Business School (HBS) links the non-corporate sector to caste-based entrepreneurship. The NSSO Survey says that two-thirds of the sector is owned by ST (5%), SCs (14%) and Other Backward Classes (48%), including 71% of the manufacturing, and 60% of the trading, units. The Survey shows that the disadvantaged castes are increasingly into trade and manufacturing. In rural areas, 72 per cent of OAEs are run by them. The HBS study said that while, in case of OBCs, their share of the business matched their population, in the case of SCs and STs it was less. But the SC share improved from 10% in 2005 to 14% in 2011. In India entrepreneuship is not a product of IITs and IIMs. They are generated by non-corporate sector. The non-corporate business units actually constitute the open the air university of entrepreneurship for the OBCs, SCs and STs. The non farming enterprises hold huge prospect for the promotion of entrepreneurship, self-employment and livelihood among the weaker sections. The advent of Dalit entrepreneur in Agra and Kanpur could become an all Indian phenomenon.

4% credit for 50% GDP, 90% for jobs

Yet, shockingly, according to the Economic Census 2005, institutionalised finance is available only to less than 4% of the 57.7 million units. More than 90% of the units rely on own or traditional sources including usurious money lenders. Banks garner most of the savings with the bank deposit to GDP ratio doubling from 34% in 1991 to 68% now. But they, perhaps rightly, do not finance unregistered businesses. With over seven out of 10 of the 57.7 million non-corporate business units unregistered, no bank would ever finance them. The banks are unable to finance even the registered MSME units, whose share in bank credit had halved to just 7.2% between 1994 and 2008. Though it improved to 13.4% in 2009-10, it was still less than in 1994. It does not need a seer to say that for ensuring social justice it is necessary to increase the ownership of SCs and STs and also OBCs in this sector. It is doable. Malaysia has done it. Through its affirmative action policy launched in the 1970s, Malaysia managed to increase ownership in private enterprises for the discriminated group of Malaya from only 2 per cent in 1970 to 20 per cent in 1990. The government brought about a systematic redistribution of ownership of private capital in favour of discriminated groups in a period of two decades. (The Hindu dt 30.11.2011)

Credit will formalise the sector

The Indian economic establishment detests devising policies for providing finance to them because they are not formalised. But it now needs to think differently. Providing finance to them is really the best way to formalise them. Says that Economist Magazine (Sept 28, 2013)”At the present rate, it will take half a century before India’s economy is fully formal. The best way to speed up the process is to extend the reach of the financial system.” Undeniably, it is the non-corporate sector, not the corporate sector, which is the back-bone of the Indian economy, employment, trading and manufacturing. Also it is the only practical escalator to lift the backward sections out of poverty. But blinded by the love of the corporate sector and hatred for the informal sector there has been criminal neglect of this sector in the past. And yet, despite being left to fend for itself, it has saved India from socio-economic anarchy by employing 90% of the non-farm labour. It desperately needs a new financial architecture which will finance small businesses. The banks working on global banking norms are structurally disqualified to lend to these units. This requires indigenous, non-Western out the box thinking. Will the budget 2014-15 fuel this real growth engine?

Source: Indian Express By S Gurumurthy



Brookfield set to buy UCP for Rs3,000 crore

Add comment   |  June 10, 2014

Mumbai: Brookfield Asset Management Inc., a Canadian asset management company that manages investments worth $181 billion, is set to acquire all of Unitech Corporate Parks Plc (UCP), a London Stock Exchange-listed, India-focused real estate investment firm, paying `3,000 crore.

A definitive agreement to this end is likely to be signed this week in London, said four persons directly involved in the deal. None of them wanted to be named.

“We do not comment on market speculation,” said Brookfield Asset Management in an email response. Routhu Nagaraju, executive vice-President at Unitech Ltd, said, “UCP has announced that it will sell six projects and the process has not seen anything adverse. It should go through at some point in time.”
UCP, which is incorporated in the Isle of Man, is developing six special economic zones (SEZs) and information technology (IT) parks in India. It had formed a 60:40 joint venture with Unitech,
India’s second largest realty company by market capitalization, to develop these assets.

Last year, UCP was in talks to sell its Gurgaon IT SEZ but the deal did not materialize. In April, Unitech had informed the stock exchanges that UCP was in talks with an investor for selling Candor Investments Ltd, the holding company, for its 60% interest in the six real estate projects.

The market capitalization of UCP was `2,750 crore as on 9 June and Brookfield Asset is offering a 9% premium. RBS AA Holdings (UK) Ltd owns a majority share in UCP at 20.08% followed by Brookfield with a 16.65% stake in the company.

Property consultants Jones Lang LaSalle (JLL) India has been advising UCP on the transaction. The firm declined to offer any comment on the deal.
With this transaction, Unitech will take home is `1,200 crore. But people familiar with the situation indicate that Unitech needs to pay infrastructure company IDFC Ltd from the proceeds after the latter converted its debt into equity a few months back.

Two persons directly involved in the transaction, who did not want to be identified, said, “Yes, it is true that IDFC has an equity stake in the 40% that Unitech owns in UCP. The stake was given to offset the debt of IDFC in Unitech.”

A text message to an IDFC spokesperson went unanswered. Nagaraju of Unitech declined to comment on the IDFC deal.

UCP had raised about £360 million by issuing and placing its ordinary shares on the Alternative Investment Market (AIM) of the London Stock Exchange on 20 December 2006.

Two analysts tracking the company, who did not want to be identified, said the transaction will not reduce Unitech’s debt materially.

The Economic Times, on 4 April, reported that Brookfield was looking to acquire 100% of UCP.

This is the first transaction for Brookfield since it started to officially manage AIG Global Real Estate India’s portfolio from January.

UCP’s total portfolio is to build 21 million sq. ft of commercial assets, of which it has developed close to 6 million sq. feet. It was earlier looking to sell the asset located in Gurgaon, but the sale of the asset was stalled due to a “third-party” problem.

According to the AIM admission document filed by UCP during its listing, the group, through Unitech Developers and Projects Ltd (UDPL), is developing the project pursuant to a joint development agreement with a third party called Gurgaon Infospace Ltd (GIL).
Unitech neither owns nor has leasehold interest in the land, but has commercial rights only through a revenue- and profit-sharing arrangement with GIL for this project. GIL is a subsidiary of IST Ltd (a company involved in manufacturing of precision turned, milled and drilled components. IST, Unitech, GIL and UDPL entered a joint development agreement on 16 November, 2006, which entitles UDPL to 72% of the gross sales and GIL to the rest.

Source: LiveMint



What A Government That Means Business Can Do For Real Estate

Add comment   |  June 7, 2014

The dust has settled on the elections drama and the BJP is now firmly in the driver’s seat. By and large, this is being seen as the best possible news for the Indian real estate sector – and rightly so. Narendra Modi has the business mind-set, background and also determination which are called for to bring India’s entire economy back on track. What the real estate sector now awaits is his policy approach to the issue of housing in India.

Now, as the country stands poised on the verge of a major change in economic climate, it is a good time to reflect on why boosting the housing sector is so important for the country. Economists typically measure economic health on various different parameters, including Gross Domestic Product (GDP), the momentum of the manufacturing sector, inflation rate, etc. However, in India, the appetite for home ownership can and must be included as an important variable.

The health of the economy influences people’s desire to either invest or hold on to their money. Since real estate is an investable asset class, forward momentum in the real estate sector depends heavily on economic climate. In fact, real estate is also a priority investment route in India, because the desire to own homes is extremely high in this country. It is also an extremely important vertical from an economic viewpoint, because the transacting of real estate generates massive revenue for the government. This revenue can, in turn, be used for the creation of infrastructure, reducing national debt and generally uplifting the country.

These aspects are extremely important from the point of view of the country’s ability to attract more investments from abroad. The Modi government is quite aware of this fact, and – in the interest of overall economic growth – is likely to remove all or most of the policy roadblocks that have been preventing the velocity of the housing sector in India.

This process will involve better incentives towards first-time home ownership, quicker approvals for residential projects, a sharp focus on the creation of affordable housing, boosting rental housing schemes, unlocking government-held land for development, putting infrastructure creation on the fast lane, and many more initiatives that the previous government had failed to address.

At the citizen level, these changes are going to bring very tangible positive benefits. With the increased viability of home ownership, more and more people will finally be able to live in self-owned rather than rented homes. Home ownership is not only a matter of pride and financial security, but is also an important fulcrum for social change.

People who live in self-owned homes are more responsible citizens – they are personally invested into their neighborhoods, become actively involved in maintaining law and order and generally see themselves as stakeholders rather than detached audience members. Such citizens tend to join hands with the government as agents of even greater change at all levels.

The effect that the policies and actions of a government which is dedicated to boosting the economy with real estate as an important card in the deck can have at a city, state and finally national level must not be under-estimated. We are now looking at the real possibility of a revival in the economy, the infrastructure, home ownership and interest by foreign companies who have been waiting to invest into India.

Apart from an increase in national pride, this can result in significantly reduced loss of valuable talent to other countries, meaning a sustained growth in home sales within the country. The increased attractiveness of real estate as an investment class will also result in a major revival of the second homes market.

Source: Indiatvnews By Arvind Jain



Why Indians do not like to reverse mortgage property

Add comment   |  June 5, 2014

A reverse mortgage is a special type of loan against a home that allows the borrower to convert a portion of the equity in the property into cash. The equity built up over many years of home loan payments can be paid directly to the borrower. However, unlike a traditional home equity loan no repayment is required until the borrower(s) cease to use the home as their principal residence.

With a traditional second mortgage, or a home equity line of credit, one must show sufficient income versus debt ratio to qualify for such a loan, and needs to make monthly payments towards the mortgage. Reverse mortgage differs in that it pays the borrower, and is available regardless of current income or assets. The amount that can be borrowed depends on the borrower’s age, the current interest rate, other loan fees, and the appraised value of the property. One does not have to make payments, because the loan is not due for paying off as long as the house is one’s principal residence. Like all homeowners, the borrower is still required to pay applicable real estate taxes and other conventional payments like utilities.

One of the myths about a reverse mortgage is that one loses one’s home at the end of the mortgage term. This is not always the case. The owner can retain the home if one pays back the funds received from the reverse mortgage lender. Payouts on a reverse mortgage can be made to the borrower in a single lump sum on approval of the reverse mortgage, in monthly payouts or in the form of a line of credit that the borrower you can draw from whenever he or she decides to. There are benefits to both approaches depending on one’s immediate cash requirements and tax situation.

There are three reasons why reverse mortgage has not proved to be popular in India. First, Indians look at owned property as a primary asset, ideally to be handed down generations and not encashed in any form unless extreme financial issues prevail.

Secondly, Indian culture has the care and support of senior citizens hard wired into it – elderly people who own properties in this country do not, as a rule, lack the financial wherewithal to support themselves in their Golden years.

Thirdly, the product itself is not as well understood in India as traditional home loans are. In any case, it does seem that unless the classic reverse mortgage is tweaked in a manner to make it more palatable to Indian sensibilities and values, it is not likely to become a big hit.

Reverse mortgage in the Indian context makes sense for elderly persons owning residential property who, for whatever reason, have no other dependable financial recourse. Also, there are instances of severe rifts within the family which can give an elderly person to choose to encash rather than bequeath the property. Finally, reverse mortgage can be used as a temporary fallback option. In other words, reverse mortgage can be availed of for a certain amount which can then be paid back in a predictable period so that the ownership of the property is returned to the owner.

By Anuj Puri (Author is Chairman & Country Head at JLL India), Source: ET



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