New Delhi: Ultra rich, high networth individuals (HNIs) and family offices are rushing to invest in India’s booming property market through alternative investment funds (AIFs) that are promising higher returns and free from red tape.
With lower entry barriers, easing structural and tax reforms in favour of AIFs and real estate investment trusts (REITs), these investors are shifting focus from direct investments in the sector. This has led to growing preference for private credit opportunities for HNIs, family offices and for those investing at least ₹1 crore. According to experts, the benefits of choosing indirect real estate investment platforms are higher risk-reward returns and investors don’t have to manage a property directly.
Rising disposable income among the ultra rich and upper middle class, the regulated and well-structured nature of AIF platforms, and volatile stock markets are key factors for the growing interest. The asset-backed tangibility and consistent cash flows seen in the sector also provide a psychological fillip to invest.
Karthik Athreya, director and head of strategy – alternative credit, at Sundaram Alternates said the general appetite for private credit, whether it is venture debt, real estate or corporate credit, is high due to demand for credit and emergence of several fund managers, showing depth and choice for investor money. This also reduces registration, paperwork and other administrative processes involved in directly owning a property, added Raj Inamdar, managing partner at TriVeda Capital.
AIFs have invested about 21% of their total investment of ₹2.84 trillion in the real estate sector as of 31 March 2022, according to the latest available data from the Securities and Exchange Board of India (Sebi). Though the share of their total investment fell by about 3.3% during the year, these platforms expect this to rebound going forward.
In the recent past, institutional firms such as Kotak Alternate Assets, Motilal Oswal Alternates, Sundaram Asset Management, Nisus Finance Group, ASK Property fund and DMI Alternatives, have set up realty-focused funds.
Sandeep Gupta, co-founder and chief business officer at co-working space BHIVE Alternatives said, “Today, direct residential real estate’s annual rental yields are a paltry 1-4%. While the last one year was good in terms of capital appreciation, the past decade was a lost cause for capital appreciation in residential real estate. AIFs investing in leased commercial real estate provide stable rental yield of around 8-10% to retail investors in addition to the capital appreciation.”
The growth of real estate AIFs has been substantial with capital raised by category-II AIFs at ₹6.94 trillion as of March 2023.
Shobhit Agarwal, managing director and chief executive officer at Anarock Capital, a real estate-focused investment banking advisory firm, terms REITs as an ideal product for moderate risk profiled investors seeking to generate regular income coupled with capital appreciation.
Also, from April, the government removed indexation benefit for debt MFs and began taxing dividend or long-term capital gains (LTCG) at 20%. With this, the flow of HNIs is moving to the high yield space, said Amit Goenka, MD and CEO of Mumbai-based Nisus Finance Group.