JLL’s SFG to experiment with rental scheme

Bengaluru: With property prices remaining low, JLL India’s investment arm Segregated Funds Group (SFG) is set to experiment with a rental scheme for its new real estate fund that it is currently raising.

The Rs.300 crore Residential Opportunities Fund – II, which will invest half the corpus in buying residential units at deep discounts in projects that are at most a year away from completion, will also look to rent them out once completed, instead of selling and making an exit.

“When asset prices go down, rentals remain stable or go up. If I can hold an asset for 5-6 years, without selling it, the risk-adjusted returns are far higher for an investor,” said Mridul Upreti, chief executive officer, JLL SFG.

SFG is one of the few funds that will do deals in the apartment buying space along with Piramal Fund Management Pvt. Ltd and Aditya Birla Real Estate Fund, which have done such deals in the past. The funds buy apartments in bulk at a deep discount, taking advantage of high inventory levels as developers grapple with slow sales.

SFG has already done its first close of its new fund, having raised Rs.120 crore, and will start investing the money soon. The fund will buy apartments that are priced from Rs.50 lakh to Rs.1-1.5 crore and are 1,000-2,500 sq.ft in size.

“Prices have come down in recent years, and selling the apartments once ready in this market may not be a good idea. Instead if we can rent them out, and then sell after a few years when the market improves, it’s a more lucrative option,” Upreti said. “We believe Bengaluru and Delhi, and even Pune, have more opportunities for this.”

While developers have started looking at renting out ready apartments, this would probably be the first time an institutional investor is exploring a rental theme.

Mint reported on 1 June how some developers in Mumbai and the National Capital Region (NCR) are looking to lease out unsold luxury apartments to executives and foreign nationals looking for a home who do not want to purchase.

Residential yields in India are still quite low, at about 1.5-3% of the capital value of an apartment compared to office yields which range at about 8-10%. SFG will aggregate service providers across cities where it invests and then also offer value-added services aiming to pump up rentals.

“There is an evolving ecosystem of institutional renting out and if it succeeds, it may break barriers in the sector. But we will have to wait and see how the model evolves,” said Ramashrya Yadav, chief executive officer, real estate practice, ECL Finance Ltd.

Credits Live Mint

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