Developers are increasingly understanding the importance of internal rate of return over simple return multiples, which don't account for the investment period, said Piramal Capital & Housing Finance Ltd managing director Khushru Jijina.
He said that this trend has led to developers bringing down the cost of housing units to be able to sell the assets rather than holding on to unsold inventory, which remains a challenge.
Jijina was speaking to Anuj Puri, chairman of Anarock Property Consultants, during a fireside chat as part of News Corp VCCircle’s Finserv 2018 summit held in Mumbai on Tuesday.
Piramal Capital is among the largest lenders to developers. Its wholesale business in the non-real estate sector comprises separate verticals - Corporate Finance (CFG) and Emerging Corporate Lending (ECL). This includes sectors such as infrastructure, renewable energy, roads, industrials, and auto components, among others.
Jijina said the firm has grown rapidly over the past four years, taking its overall total assets to more than Rs 80,000 crore. It is now averaging a monthly disbursal of Rs 5,000 crore.
Jijina said that the demand cycle has returned to pre-demonetisation levels and he expects the debt capital requirement to increase.
He also pointed out that promoter experience, execution risk and professional talent are key factors in making a lending decision.
Jijina also said that foreign investors are shying away expecting a valuation correction given that general elections are less than a year away. He added, however, that equity valuation has already bottomed out and it would be the right time to invest in the real estate space with a seven to eight-year horizon.