Essel Financial Services Ltd's private equity division is gearing up to launch its inaugural real estate fund, amounting to an impressive Rs.1000 Cr, specifically designated for investments in the residential sector.
Investment Plans
Based in Mumbai, Essel has already successfully raised Rs.200 Cr, earmarked for the real estate market. With eyes set on developing housing projects in leading cities nationwide, the Essel Group is strategically positioning itself amidst a growing trend where private equity in real estate is gaining traction.
In 2012 alone, India witnessed 32 deals concerning private equity real estate (PERE) investments. The cumulative value of such funds totaled approximately $464.26 million, surpassing the previous year’s $310.88 million from just 15 deals.
Future Funds
The private equity arm, backed by Subhash Chandra’s Essel Group, is looking to initiate a further Rs.500 Cr fund, with plans for an additional fund of an equal size. This new capital is expected to come from domestic investors eager to capitalize on the booming residential segment.
Amit Goenka, CEO of Essel Financial Services, points out that developers are facing a significant capital crunch. "Most of the projects are stuck, due to the lack of capital... delays in approvals are also a significant concern," he stated.
Market Dynamics
In recent times, realty firms are increasingly turning to private equity for investment, especially as banks exercise caution in lending. Factors contributing to this cautious approach include a sluggish real estate market and widespread approval delays, which have adversely affected home sales across multiple urban areas.
On a contrasting note, private equity firms are showing greater willingness to invest in the residential sector, which is perceived as more stable and viable than commercial ventures. Many PE firms are steering clear of office space developments due to market conditions.
Current Investments
Essel Group has successfully secured approval from the Securities and Exchange Board of India for its initiatives. From the first fund alone, nearly Rs.80 Cr has been invested in a residential project based in Mumbai. Additionally, investments include Rs.40 Cr in a project located in Chennai and Rs.60 Cr in Gurgaon. Mr. Goenka anticipates that the entire fundraising endeavor will conclude within the next three to four months.