HDFC launches realty fund with SBI

Housing Development Finance Corporation (HDFC) announced its foray into the real estate fund business in India with the launch of HDFC Property Fund in association with State Bank of India (SBI).

A trustee company, HDFC Ventures Trustee Company, and an asset management company, HDFC Venture Capital, have been  incorporated for the fund. The venture capital fund, approved by Sebi, would be investing in equity and equity-linked instruments of companies engaged primarily in real estate in major cities in India.

The fund's initial scheme - HDFC India Real Estate Fund (HI-REF) - is
for domestic investors, and has a target corpus of Rs 750 crore with a
greenshoe option of Rs 250 crore. This would be a 7-year, close-ended
fund, which would be raised via private placements. The scheme would have a minimum contribution of Rs 5 crore per investor and would target banks, insurance companies, corporates and high net worth individuals.

HI-REF will invest in three broad classes of companies:

a) Projects which are complete - this would comprise real estate assets, which are in use with established, high-quality tenants. Such asset class typically would denote steady income type characteristics.

b) Projects in the development stage - where the lead-time to commercial deployment is typically between 1-3 years and the completed projects subsequently would have contractual off-take arrangements in place.

c) Projects in the planning stage - where the lead-time to commercial
deployment would be 3-6 years. These projects would offer the highest amount of return although with a greater risk.

Keki Mistry, managing director of HDFC, said: "The venture fund is an extension of HDFC's core business, and a value add to its bouquet of
services in the real estate sector. This is a first step, and going forward, we hope this will encourage professionalism and provide depth to the industry."

Renu Sud Karnad, executive director of HDFC, who would be the
non-executive chairperson of HDFC Venture Capital, said: "Worldwide, real estate represents a substantial share of fund allocations by institutional investors. This has been hampered in India by the lack of credible mechanisms through which institutions could invest in the sector. With the increase in professional players entering the real estate business, coupled with the recent boom, there has been a lot of demand from investors for a real estate investment scheme. With real estate looking up as a positive investment option for venture capital companies, we are confident that the much required investment will be welcomed."