IIFL and Edelweiss Group planning to buy bengluru projects

In the very first transaction, IIFL is planning to lend Rs.500 crore to Ariisto Realtors in the form of structured debt. IIFL Group, which is one of the largest financial services firm has made two big investments one by one in the different real estate projects which are located at the Mumbai and Bengaluru and it is expected that this investment will help the real estate developers to start he projects and refinance the existing the loan, as per the statement of the executive of company.

Investment with Ariisto Realtors:

In the very first  transaction, IIFL Group lends Rs. 500 to Ariisto Realtors in the form of structured debt for the residential project which is coming up at Kandivali, a western suburb of Mumbai. Apart from that it is expected that real estate developer will use some of the working capital to partially refinance loans of HDFC Portfolio Management Services, a part of HDFC Asset Management Co. Ltd. and Piramal Fund Management Pvt. Ltd, who are existing investors. Till now out of Rs.500 crore, IIFL has already disbursed the amount of about Rs.370 crore. It was the second deal of IIFL with Ariisto, however; the first deal of IIFL was very small with the amount of Rs.80 crore in 2014.

According to Balaji Raghavan, Director of IIFL Realty Ltd, which is a subsidiary of IIFL Group, “It is an early-stage transaction and the project is about to take off”. However; Hiren Patel, the Executive Director of Ariisto Realtors stated that “Our Company has more than 19 residential projects in various parts of Mumbai”. The more he added that the Kandivali project has two and three bedroom apartments and currently project is in the process of procuring approvals. We are planning to use that money for the project development and it will help us to repay the Piramal and HDFC Portfolio Management Services”.

Investment with Manyata Promoters:

In the second transaction, Edelweiss Group, which is also financial services company and IIFL jointly lend around Rs.725 crore to Manyata Promoters, which is Bengaluru based real estate developer and landowner. As senior lender Edelweiss will about Rs.450 crore and rest Rs. 275 crore will be given by IIFL. In September, the IIFL Group and some of its wealthy clients have invested Rs.300 crore in the real estate projects which are located at the western Mumbai suburb of Borivali is under construction by Radius Developers in partnership with Deserve Builders and Developers Ltd. IIFL Group and its non-banking financial arm as well as its private equity arm is actively investing in the real estate projects.

The partnership between IIFL and Edelweiss is another instance of investors such as; non-banking financial companies (NBFCs) and private equity (PE) funds have join the hands for big-ticket transactions while hedging risk in a sluggish market. While confirming the transaction, Sanjeev Rastogi, Executive Vice-President of ECL Finance Ltd, the NBFC arm of Edelweiss Group stated that the debt has been given for working capital and refinancing purposes. Manyata Promoters, which is also the shareholder in Embassy Manyata Tech Park, a prominent information technology (IT) special economic zone (SEZ) located at Bengaluru with investor Blackstone Group Lp and realty firm Embassy Group will use the money for two of its new plotted development projects.

According to Raghavan¸ it was best deal in which both IIFL as well as Edelweiss were interested, but requirement was larger than what we would have individually been able to do., so both firm decided to share a comfort level with joint effort. According to Shashank Jain, Partner in transaction services of PricewaterhouseCoopers India, “In collaboration may not be the norm because we are likely to see more such associations between different kinds of capital and different risk appetites.

Real estate investment

In present location issue is keeping the buyers away; but better ROI, an incentive, benefits of tax breaks are still attracting the investors as well as end users towards the real estate market. In India, affordable segment are finding buyers but most are investors not those who are planning to stay in those homes because of the location issue as the home is located too far away from offices and have little support infrastructure, analysts and trade experts said. Peoples are making the attempt to invest in real estate sector because government have increase the accessibility of housing through tax breaks and other incentives or benefits, which are therefore going towards those more interested in turning a profit.

Almost 50 per cent of the total housing stock of 293 million sq. ft sold in the last fiscal year, which was ended on March 2014 and the prices of those property was less than Rs.50 lakh, as per the data of real estate research firm Liases Foras. Flats which cost Rs.25-50 lakh accounted for 37 per cent of the total housing stock sold in the same period, while those below Rs.25 lakh had a 13 per cent share. Mumbai is the city which known for its high property prices as well as ROI, accounted for 13 per cent of the sale of houses priced below Rs.25 lakh and 28 per cent of houses in the Rs.25-50 lakh range. According to Pankaj Kapoor, The Managing Director of Liases Foras, “Most new launches in the last three quarters are in the affordable category”. The more he added that the rise in sales in part to state government regulations which have been favorable for both real estate developers and buyers in the relatively more affordable segment.

In December 2014, the Apex Bank (Reserve Bank of India) allowed real estate developers and housing finance companies to raise up-to $1 billion through external commercial borrowings to promote housing projects, which also referred to as low-cost because they are cheaper than more upscale properties. The budget of 2013, proposed a Rs.2.5 lakh deduction on the total taxable income on home loans of less than Rs.25 lakh, applicable to loans from banks and non-banking financial companies (NBFCs). Such housing projects are profitable business for real estate developers as in Mumbai, they provides an internal rate of return (IRR) of 45 per cent with gross margin of 24 per cent. According to report of Monitor Deloitte in 2010, a consulting firm, “Most of the flats are being bought by investors rather than genuine low-income end-users despite the low prices and interest rates, since these flats are being built in far-flung places with poor connectivity and social infrastructure, real estate and analysts”.

For example, If person buys such a home in Karjat, which is one of the last stops on Mumbai’s suburban Central line,  will have to travel about 85 km if his/her office is in the central business district of Nariman Point. That’s about two hours by train each way. According to Kapoor, “Trans Harbour Link have easy connectivity between the the mainland and the island city and provided a much-needed boost for affordable housing”. The Trans Harbour Link have 22 km road across the sea which will connect the island city and Navi Mumbai. It is expected that, Trans Harbour Link will be operational by 2018-19. Now investors are looking to it as excellent opportunity as it has connectivity and support of infrastructure. According to Om Ahuja, the chief executive, “Most projects are not affordable in terms of living and these projects are bought by investors who park their money. If it is a wrong product, their investment gets stuck”.

According to Brotin Banerjee, MD and CEO of  Tata Housing, “Tata Housing sells these homes under two different national banners; Shubh Griha (Rs.4-13 lakh) and New Haven (Rs.25-40 lakh). It plans to launch more affordable projects across different consumer segments in Mumbai, Bangalore, Gurgaon, Bhubaneswar and Kolkata.” VBHC (Value and Budget Housing Corp.), has many affordable housing projects, which are in Delhi, Chennai, Mumbai and two in Bangalore. It’s planning to launch one more in Delhi and Mumbai in the next few months, according to Vivin Mathew, chief executive, western region. On March 2014, GPL (Mumbai-based Godrej Properties Ltd), the realty arm of the Godrej group, launched an affordable housing scheme at its Godrej Garden City township project in Ahmedabad. In real estate market some of the real estate developers are using finance and marketing techniques to attract genuine home buyers or investors in the Rs.6-25 lakh range.

Poddar Developers Ltd, a Mumbai based real estate developer has 25 per cent of the apartments in one of its project to families availing loans from NBFCs such as Gruh Finance Ltd, Mahindra and Mahindra Financial Services Ltd and Muthoot Fincorp Ltd. NBFCs offer rates that are slightly higher than that of commercial banks, but have an easier documentation process, making it a better option for low-income borrowers. According to Rohit Poddar, MD of Poddar Developers Ltd., “We don’t sell more than one flat to a single buyer. We have a 75:25 mix of actual home buyers and investors”. In last two years, Poddar Developers has sold more than 2,500 apartments in Badlapur in Thane district and Karjat in Raigad district, in the range of Rs.3.5-12 lakh each. Recently they have launched the similar project at Atgaon in Thane and is planning 40,000 sq. ft of land by the end of this financial year.

According to Rashmi Housing Pvt. Ltd, “It’s also giving a loan to home buyers without interest to drum up interest in homes that cost below Rs.25 lakh. According to Yogesh Bosmiya, Director of Rashmi Housing, “Around 30 per cent of our home buyers or invetors they are availing this loan facility and we are mostly getting the end users”. Rashmi Housing Pvt. Ltd, said that they has sold more than 3,000 units in the Mira-Bhayander area of  Thane district since 1999 and is developing another 4,000 units in the same area. Bosmiya said the profit margin is 20-25 per cent. Whereas; some of the real estate developers are constructing the hospitals and schools to improve the existing public schools, to create social infrastructure in a bid to attract families.