Investors are trickling in, providing temporary relief to the cash-strapped realtors, even as regular sources of financing, including bank funding and private equity investments, continue to shun the real estate sector.
A few of the traditional sources of funding, prior to the 2005 real estate boom, are now returning to invest in commercial projects after about a 30 per cent drop in property prices in the past year, experts say.
High networth individuals, corporates and trusts have invested or are firming up plans to buy stake in projects after almost a three year gap.
Among the high networth individuals, traders, jewellers and tobacco industry related individuals, restaurateurs, have invested in commercial projects that are nearing completion or have already been leased out. The investment known as 'last mile funding' are helping these realtors to finish projects, which were shunned by banks.
"HNIs are also coming back to the real estate projects as they feel that the sector has bottomed out and they will get good returns on the money invested in completing big projects," said Rohtash Goyal, Chairman, Omaxe.
Most of the investments have come in between mid-December to January period, said Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj. A sharp drop in property prices seems to have lured these investors back to the real estate market, who had shunned the sector as prices climbed rapidly.
January was the first month when we saw consummation of four transactions with a cumulative investment of Rs 350 crore, said Puri, declining to give details of the projects and investors.
Surprisingly, a few religious trusts have also evinced interest in investing in the real estate after the correction. A key reason for the interest is the possibility of steady income in the form of lease earnings since these trusts are barred from earning interests.
Adding to the relief of realtors private equity players are also firming up plans.
"Private equity firms are creating 'completion funds', now. Such funds invest only in big projects for which the developers are desperate to get capital and pay high interest," said Goyal of Omaxe.
However, some consultants say that large scale transactions by HNIs and other entities are hard to come by as real estate sector still remains uncertain and investors and buyers expect prices to fall further.
"Investors are evaluating all over again about investing in properties. But I see investments coming in only in the middle or end of the year after the elections, when a trend is expected to emerge. Both buyers and investors are expecting prices to go down further,'' said Ambar Maheshwari, director of DTZ, an international investment advisory.
