Element Capital to raise $1 billion fund for low-cost housing

BANGALORE: Real estate-focused private equity firm Element Capital is in the process of launching a billion-dollar (about Rs 5,400 crore) fund that will invest in low-income housing, as it looks to take advantage of a resurgent property market.

The Element Value Housing Fund, which is expected to be launched by this August, has received commitments of about $300 million (Rs 1,600 crore) from many high net-worth individuals, endowments and pension funds, according to fund manager Sharik Currimbhoy.

"We hope to have the first and final close of the fund by August 2013, and are in the process of identifying projects in Hyderabad, Bangalore, North Delhi, among others," Currimbhoy told ET.

The news comes at a time when the country's moribund residential property market is expected to see an uptick in fortunes in 2013, driven by improved economic conditions.

"The residential property market in India is doing quite well currently, and may even be doing better than commercial realty," said Ambar Maheshwari, managing director of corporate finance at Jones Lang LaSalle.

The fund is expected to make investments to the tune of $100 million per project, and will look to stay invested for a minimum of five years, with the option of two one-year extensions.

"The investments will be straight up equity investments, and we will be creating special purpose vehicles for each project identified by us," Currimbhoy said, adding that his fund management fees will be donated towards social entrepreneurship ventures.

Separately, recent policy changes have given fresh hope to fund managers, who have otherwise failed to deliver the promised double-digit returns to investors, even as the country's economic growth continued to contract due to the ongoing global financial crisis.

Last December, the Reserve Bank of India allowed real estate players — whose projects were otherwise stymied due to the high cost of domestic borrowings — to avail external commercial borrowings for low-cost housing projects.

Also, state-owned Housing and Urban Development Corporation (HUDCO) has announced an interest rate cut of 0.5%, which will see floating interest rates for housing schemes for the poor range between 8.50% and 8.75%.

"The availability of ECBs for real estate players and HUDCO's rate cut have come as a huge positive, and we are looking to take advantage of that," Currimbhoy said.

In 2012, the aggregate value of private equity investments in India's residential real estate space dropped by more than half to $463 million from a year ago. The total value of investments in the larger real estate space for the same period saw a similar drop to $1.95 billion, according to research service Venture Intelligence.

However, over the last four months, some of the country's largest private equity investors, including IDFC Real Estate Investments, Reliance Portfolio Management Services and HDFC Property Fund, have formalised plans to launch real estate-focused funds.

"The negativity about real estate continues when it comes to private equity. There have not been too many institutional investors that have been able to make money in the sector. But a number of domestic investors are currently on the road to raise funds," Jones Lang's Maheshwari said.

Earlier this month, media reports indicated that the International Finance Corporation, the private sector investment arm of the World Bank, is looking to invest up to $50 million in Tata Housing Development Company's affordable housing arm Smart Value Homes.

Source: http://economictimes.indiatimes.com/markets/real-estate/news/element-capital-to-raise-1-billion-fund-for-low-cost-housing/articleshow/18473133.cms