Thursday, November 22, 2007

Red Fort Capital lines up Rs800 crore for low-cost housing

An equity fund focused on the Indian real estate market, Red Fort Capital Advisors Pvt. Ltd, plans to invest Rs800 crore over the next six months in developing low-cost housing projects in India.

“We will do the entire development of low-cost homes in partnership with a developer,” said Red Fort Capital director Subhash Bedi. “We plan to use pre-fabrication material which will reduce the cost of construction.”

The company plans to invest in houses that cost under Rs10 lakh. The houses will range from 300 sq. ft to 850 sq. ft in size. Red Fort will hold around 80% stake in the projects and besides making a financial investment, the private equity firm would create the business plan and coordinate the development of the projects with local developers.

Home prices in India are said to have tripled in three years in many areas, making even middle-income housing more expensive and often upward of Rs50-60 lakh in some metros.

Red Fort Capital is a Cayman Islands-based fund that has about 10 investors, including government institutions, insurance companies and pension funds. It has raised Rs2,000 crore from these investors and invested Rs1,000 crore in India in the three years it’s been around.

Red Fort plans to exit the projects after their completion. While low-cost housing projects might not give the same returns as a high-end residential project, the fund firm expects to make money from the size of the projects. “It is less about rate of return and more about the volumes,” Bedi said. “We can get good returns as we would be building tens of thousands of houses.”

Red Fort is in the process of acquiring land for the projects. In the next two years, the company plans to co-build 20,000 units of low-cost houses. The first project would be launched in January, the firm fund said. Red Fort Capital expects to deploy Rs1,000 crore by the end of this year.

Red Fort is among the several private equity players that have announced plans of investing in the Indian real estate market, buoyed by hopes of rising real estate values and pent up demand for home ownership, rather than renting. Private equity players, such as Morgan Stanley, Citigroup, Blackstone and Tishman Speyer, have all invested in real estate, including commercial real estate. Private equity firms are keen on investing in India as the Indian real estate market offers one of the highest returns in the world at around 25%.

Earlier this week, Trikona Trinity Capital Plc., a fund created for investing in the Indian real estate market, said it plans to divest part of its equity stake in four of its off-shore entities that own residential and commercial projects in India for Rs2,607 crore because the divestment will provide a realized gain of 108% over a holding period ranging from nine to 14 months.

The fund is looking at developing such projects in the peripheries of metros such as New Delhi, Mumbai, Chennai and Bangalore


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