Retail Investors Targeted by Small Developers for Funding
In a bid to overcome the challenges posed by dwindling bank credit and increasingly expensive private funding channels, several small developers are now seeking to raise capital from retail investors. These developers are offering attractive guaranteed returns of 12% for periods ranging from 5 to 9 years.
developer's Offer Details
- Minimum Investment Requirement: A retail investor must purchase a minimum area in the project, making an outright payment.
- Example from Delhi-based Piyush Group:
- Project Type: 4 lakh square feet IT project in Faridabad.
- Return on Investment (ROI): 12% guaranteed return for 9 years.
- Minimum Investment: Rs 20 lakh for 500 square feet.
- Quote from Piyush Group JMD, Mr. Amit Goyal: 'We're offering a minimum guarantee to investors to cover their risk since the project isn't yet ready for leasing.'
How the Scheme Works
- Initial Phase: Investors receive a monthly return until the project's completion.
- Post-Completion:
- If rentals exceed the guaranteed 12%, the surplus is either given to the investor or shared between the investor and developer, depending on the scheme.
- If rentals fall below the 12% mark, the developer compensates the investor.
Expert Insights
- Opinion from Cushman & Wakefield India Director (Capital Markets Group), Mr. Sandeep Singh:
- 'Small developers are struggling to secure bank loans. Borrowing privately at 18% or more is risky. Thus, borrowing from retail investors at 12% makes sense.'
- 'Unlike bank loans, this scheme allows developers to mitigate risk from the outset.'
- Industry Context: With 12.25% considered a relatively cheap rate in today's cash-constrained environment, such schemes are likely to gain traction.