HNIs, family businesses moving away from realty…

From ET Realty

NEW DELHI: Family offices and high net worth individuals (HNIs) in India are investing much less to acquire physical real estate, especially residential property, as wealth managers caution them to trim down their over-exposure to the asset class.

Instead, many are switching to investing in leased commercial property or providing credit or equity to cashstrapped real estate developers with a defined exit.

While the global average exposure of HNIs to real estate as an asset class is around 16%, the average in India is almost three times that at around 45%, say wealth managers.

Over the last few years, many family of ices and high net worth individuals had invested heavily in residential real estate assets, both under construction and completed, but as the market slowed down and sales dried up, they have been unable to exit these investments.

“We are advising people who are overexposed to real estate to refrain from investing in the asset class,” said Himanshu Kohli, cofounder of boutique wealth management firm Client Associates.

“But for people who are still underexposed, this is a great time to buy, especially if it is with a 10-year plus horizon.”

Nishant Agarwal, head of products-investment advisory and family office at ASK Wealth Advisors, said high net worth individuals still have a selective appetite to invest more in financial instruments linked to real estate.

Now, rather than investing in apartments, many wealth managers are advising their clients to financialise their holdings in real estate.

“We are advising clients to enter real estate through financial solutions rather than buying physical assets,” said Anshu Kapoor, head, private wealth management, at Edelweiss Financial Services.

This could be through providing credit, equity or a combination of the two to select real estate developers across the country. “Here, the exit is defined, the return is defined and the risk is measured,” said Kapoor. “This is a different form of investing in an asset class, which is usually very illiquid.”

Ashish Shanker, head -investment advisory at Motilal Oswal Private Wealth Management, said luxury real estate looks stretched today, but commercial real estate is doing well. “If you can lock in good quality commercial real estate with good tenants, there is a big opportunity,” he said.

According to property advisory firm CBRE, around 38-million sq ft of corporate real estate space was leased in 2015, the highest till date, rising 18% over last year. The October-December 2015 period itself saw 12 mil lion sq ft of office space being leased.

“With commercial activity going up and REITs coming into the picture, this segment will have a good capital gains opportunity in the near future,” said Munish Randev, chief investment officer at Waterfield Advisors.

Amit K Lalit, chief executive of VALION PREFO (private real estate family office) said commercial assets are a hot property now and deals with any discounts are being picked up like hot cakes.

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