The group manages a domestic alternate investment fund called the Residential Opportunities Fund – I and has also launched a second fund in the same space – Residential Opportunities Fund – II. The five-year close-ended fund would invest in residential projects in seven cities/metropolitan areas.
Where do you see investment opportunities in the property markets currently?
The sentiments are muted, but the truth is that there is not just one property market in India but 100-plus micro-markets with different dynamics. For instance, in Bengaluru, there is favourable demand and supply balance. In Delhi, new supplies have dropped and this may help price appreciation. There are pockets of value one can find in certain localities of Pune. So opportunities exist in select locations and projects.
Should home buyers jump in now or be on the sidelines?
There continues to be risks in certain locations. For instance, prices in Mumbai have not come down as one expected. The story in many tier-2 cities is not bright and it may take a while for the inventory to clear. But in most markets, end users can focus on the location, project details and developer credentials and then decide what to buy.
Buying under construction properties with an eye on short-term gains was a trend in the past. Do you still see this?
Traders have nearly disappeared from the market. The risk-return trade-off is not in favour of buying projects that are just launched. It may be better to buy a home in projects that are already completed or nearing completion. Buying homes close to hand-off also makes sense for an end-user as he can move in quickly and not face uncertainties over delays.
As a fund, what are your preferred residential property investments currently?
There are many unsold homes that are close to hand-over. We do bulk purchases in these mid-income properties in locations we think have a good potential; the projects we pick must have the right end-user feedback; the home price must be attractive — at or close to the cost of constructing something new.
Rather than buy, hold and sell, we plan to do active management by renting out the property. That way, the asset offers returns and there is the flexibility on the exit timing. We can think of it as Real Estate Investment Trusts (REITs) for residential properties.
Rental yields are not the only aspect of return. Many HNIs already use this strategy now. They own properties that they rent out and sell after a few years. Typically, properties may not give good return over a short time-frame, but extending it to four or five years may improve returns. So their purchase is with an eye on a mix of income and capital appreciation. But there are inefficiencies due to scattered ownership. There is no institutional ownership of rental properties as it is in developed countries. For a tenant, professional landlord service can add a lot of value.
A variety of choices — whether it must be furnished, type of appliance, furniture — can be offered to a prospective tenant on an online platform. Overhead costs can be minimised as we own a sizeable number of properties, say 30-40, in a project.
What is your view on the impact of the Real Estate Regulatory Act?
The Act will, in my view, change the property market in a big way. One, small developers may start to disappear. The larger ones have to change the way they do business. Two, there will be access to more information which will change market dynamics. Three, there will be higher quality compliance and better customer management.
There seems to a preference shift from physical assets to financial. What would be the impact on the real estate sector?
The shift to financial assets with the underlying being a property would be good for instruments such as REITs.
Credits The Hindu Business Line