Primary Real Estate Advisors Plans $500 Million Fund Despite Market Slowdown
Primary Real Estate Advisors, an Indian fund manager, is preparing to introduce a substantial fund, potentially reaching $500 million, possibly in the latter half of this year. However, the company acknowledges the challenges posed by India's faltering property boom and plans to proceed cautiously.
Foreign Investment and Market Trends
Following the easing of regulations on inward investment in the construction industry in early 2005, foreign investors have actively utilized such funds to participate in India's property development sector. This influx of investment has fueled significant land speculation and a substantial increase in property prices, nearly quadrupling in some cases. However, recent indicators suggest a market slowdown, with home sales volumes experiencing a decline. Mumbai has witnessed a one-fifth drop, while Bangalore has seen a more significant 40% decrease in the past year.
Investor Confidence and Fund Strategy
Despite these signs of a cooling market, Ashwin Ramesh, the head of Primary Real Estate, remains confident in attracting North American and European investors. He believes the fund's strategy is well-suited for a less volatile market: “We would typically underperform in a raging bull market but overperform in a flattish market.”
Ramesh anticipates the new fund's launch within the next six months to a year, aiming to raise between $300 million and $500 million. He noted widespread interest, particularly from North America and London, and added, “At the moment there’s interest in North America and London, but we’re in touch with people all over the place.” He further explained that the company is actively expanding its team, which is presently managing a $32 million fund secured in mid-2007.
Targeted Returns
Primary Real Estate is setting its sights on internal rates of return between 15% and 20%. This target is notably lower than the typical 20% to 25% often projected by funds operating in Asia's emerging property markets, including India, China, and Vietnam. This approach reflects a more conservative strategy in response to the current market conditions.