Indian property fund Indiareit Fund Advisors, a unit of drugmaker Piramal Healthcare, is expecting to make two exits totaling 1.75 to 2 billion rupees by June, a top official said on Thursday.
"The exits, I cannot give you the details, but one is in Mumbai and one is outside. The Mumbai (project) is self-liquidating, by sale of flats, and Pune is by way of selling assets," Managing Director and Chief Executive Officer Ramesh T. Jogani told Reuters in an interview.
He, however, declined to name the projects or the companies it was in discussions for the exit, citing confidentiality clauses.
The Mumbai project is a residential complex, in which the fund made investments in 2008, and that in Pune is a residential cum commercial venture.
Indiareit is expecting an internal rate of return IRR.L, a measure to compare the profitability of investments, of 20 percent from the Mumbai project.
However, the Pune property is the larger one and the fund is looking at selling it in small chunks.
"So the IRR and the money multiples will be determined by the end of the sale," Jogani said.
Indiareit has made five exits worth 7 billion rupees between September 2008 and March 2011, its website showed.
Private-equity investments in India jumped 31 percent to $7.89 billion in the first three quarters of 2011, according to data from auditing and consultancy firm KPMG. However, the pace of transactions is slow, despite more than $20 billion raised by PE firms to invest in India.
PE investors are poised to exit roughly $5 billion worth of Indian real estate investments in the next two or three years, a Nomura report said in May, adding pressure to a sector struggling with access to capital and falling property prices.
At present, Indiareit manages three domestic funds and an offshore worth 30 billion rupees and 8.50 billion rupees of third-party mandates.
The firm looks at multiple exits in projects it had invested -- either through self-liquidation, selling it to another investor or to the developer itself.
The fund is also in the process of raising a rental yield fund worth $225 million.
"The response has been good but the period of raising has got extended. Earlier, we would take 3 months to raise the amount but now it's longer," he said, citing adverse market conditions.
Prices To Slide
Real estate firms in India are under pressure as 13 interest rate increases in the past 18 months have raised funding costs, while sales have remained sluggish. This could lead to price correction in Mumbai and other cities.
Mumbai, one of the hottest property markets in India, has seen sales registrations slump 25 percent on year in October to 4,633.
Registrations have continued to languish at about 4,500 levels for the last few months on the back of a worsening macro-economic environment for the real estate sector, brokerage Prabhudas Lilladher said in a note.
Real estate prices, have however, been steady during the year across most of the cities in the country, and have not fallen despite interest rate hikes.
However, in Mumbai - one of the most expensive real estate markets in the country - certain developers have offered discounts under certain schemes, which cannot be considered as dip in prices, traders said.
"It think it should have corrected, I think it's only a matter of showing the developer the colour of money. I guess it's a wait and watch, because if they (developers) are paying higher interest, they need to sell it cheaper. That's my feeling," Jogani said, referring to prices across the country.
"If I were a developer, I would do that. Sell my goods rather than pay higher interests."
The interest rate hike by India's central bank has made borrowing expensive for real estate firms.
India's central bank raised interest rates in October for the 13th time on expectations that persistently high inflation will finally begin to ease starting in December.
Realty funds that have raised money in 2005-2006 would have finished investing it by 2013, so raising new funds should begin in next 6 months, Jogani said.