Real estate funds trying to raise a couple of billion dollars overseas are struggling to tie up commitments, with potential investors put off both by integrity worries over India’s realty sector and still-depressed property markets abroad.
Some half-a-dozen funds have been scouting abroad for about a year to raise between $200 million and $700 million (Rs 900-3,000 crore) each.
This is the second big overseas fund-raising initiative for the sector. In 2006-07, domestic real estate funds got commitments for $8-10 billion, of which about $5 billion made its way to the Indian market.
The foreign money is crucial. India’s real estate sector is poised to expand after a couple of slow years, with developers again taking on large projects, but is held back by a severe fund crunch.
Loans from banks, their biggest source of capital, are tight because of the central bank’s hawkish stance on lending to the sector.
Domestic fund-raising by private equity (PE) firms is on a smaller scale of Rs.50-150 crore.
India opened its real estate sector to foreign direct investment (FDI) in 2005.
“While global investors are themselves relooking at their portfolios, the fact is that they haven’t seen many significant exits in Indian real estate in the past, and returns on investments were not significant,” said Ajit Krishnan, partner, real estate practice, at consultancy Ernst and Young.
“While it will take longer for funds to raise money this time around, we expect to see more exits in the next one year or so, which should boost investor confidence globally,” Krishnan said.
According to property consultancy Knight Frank India, only $400-500 million of foreign funds flowed into the real estate sector in 2009-10.
