The fund would invest up to Rs 5 crore per residential project in Pune to help the small developers to complete their projects quickly and raise standards. The fund's first series witnessed investments from 84 developers, all of them attached to PBAP. The Rs 26 crore would be used to finance six projects initially.
PBAP President Lalitkumar Jain said, "Smaller developers do not get equity funding in the present scenario. Only those real estate projects developed on more than 25 acres are eligible for FDI. Funding from MFs and venture capital establishments is costly because of the heavy processing fee. This forces smaller developers to rely on private funding, which is also again costly. Considering this aspect, PBAP has decided to form its own fund that will buy stake in smaller projects to meet their financial requirements."
The first series of the PBAP Realty Investment Fund has a lock-in period of seven years. However, investors can transfer their stake to another PBAP member.
"We have appointed legal and finance experts to approve projects, which would later be finalised by a PBAP investment committee. Our aim is to disburse funds within one month of the application. We will invest in projects that have timeline of 18-24 months. Once the project is ready, the investments will be diverted to some other project. Returns will be shared by the investors," stated Jain.
PBAP has formed a Trust, which will have a separate company to run the fund activities. Ranjit Naiknavare, a PBAP member and managing director said, "The investment would be done in land cost as funding is easily available from banks for construction activities. The second and third series of this fund would be launched later."
PBAP expects the fund to grow to Rs 300 crore by 2009 and to Rs 4,000 crore in another three years. "After Pune, we will cover Maharashtra and later spread to western India," Naiknavare added.
