Even as subprime fears are ceasing to diminish, it hasn’t deterred the plans of fund houses to come out with an overseas-focussed real estate fund. ING Investment Management India recently launched its overseas-focussed real estate fund. Rajesh Naidu of The Financial Express posed questions to Vineet K Vohra, managing director and chief executive officer, ING Investment Management India, regarding the expenses involved in the fund, reasons for the launch, and watchwords involved in investing, both, in India and overseas.
What are the differentiating factors between the Indian real estate market and international Markets? Where do we lack the most?
The Indian real estate market is still very small: by ING Real Estate’s calculations, India is less than 1% of the global universe of real estate, estimated to be at $23 trillion as of 2007. India is not a part of the global property securities index owing to its small size. It must be noted that India has no listed REITs and that REOCs or developer stocks are a recent phenomenon. Thus the aim of ING Global Real Estate fund is to provide diversified exposure to global real estate; its goal is not to supplant Indian real estate, but to complement what domestic investors hold.
Which are the sectors where you can see the reach and potential of the real estate sector apart from hospitality, retail, and health industry?
All the major property types are important in constructing a balanced global real estate securities portfolio - office, industrial warehouses and logistics centres, and leased apartments are important complements to the sectors mentioned above. From a cyclical perspective (since real estate is a cyclical asset class), retail and industrial properties tend to be more defensive and office tends to be more volatile. The very goal of a global portfolio is to provide the sort of diversification that insulates the investor from a single country or property type exposure.
Do you see an impact on the returns of funds, due to the rising interest rates and appreciating rupee?
Rising interest rates do impact real estate, but rates across the globe don’t move in tandem. Interest rate cycles may vary by a year or two from country to country. This has a huge impact when you are running a global portfolio, because you can latch on to these different cycles and smoothen things off. Similarly, currency movements are never one sided; they move in cycles. Also, we have currency diversification as well in our portfolio, because half of our investments are in dollar block and the rest are in non-dollar currencies that are very strong.
What are the expenses involved in your fund? And what kind of returns one can expect?
There are two expenses that investors will have to bear as a result of this being a feeder fund. We charge a 75 basis points expense in India, and the offshore fund charges 160-190 basis points. But our expense varies with size. As the size grows, the expense falls. In a worst-case scenario, we have a 265 basis point expense. A typical Indian equity fund charges 240-250 basis points. Considering that it is a global product, a fund of funds, and a diversifier, I think it is competitively priced. In the past, the fund has outperformed benchmarks, in both good & bad market cycles. Mostly, funds beat their benchmark by being more aggressive, which means that when the market falls, they get caught & fall more sharply.
But this product is well protected. It rises more than the benchmark and falls less than the benchmark. It is designed to beat the returns of bonds and the volatility of equities, and provide a hedge to your equity investments.
A lot of private equity (PE) money is flowing into India, but China is way ahead of us. What is so different in China?
China has undergone a structural change similar to the Indian Economy, but the Chinese real estate market had a headstart as compared to India. It’s been 10 years now since PE funds have been investing in the China growth story. Undoubtedly, India is becoming a real estate high growth market, which is why we see such intense interest from PE funds. The Indian market is expected to see the same transformation as China. In the short term, the market will be very competitive and many PE funds will find it hard to conduct deals. The money has been raised, but for many of these funds, deploying it will be a challenge in the short term.
Your bet on the Indian real estate sector - where is the industry right now, how has it grown, and what lies ahead? Do you agree with the bubble perception?
The Indian real estate market continues to evolve from being an unregulated and fragmented segment of the Economy, to a much more focussed, growing and regulated segment. The past few years have seen consolidation within the industry and there has been a significant increase in the value of Indian real estate over the past 4-5 years.
A lot of sentiment and emotions is driving the market, which has resulted in volatile prices in the real estate securities market. Asset classes go through a boom-bust cycle or a correction cycle, one has to figure out his comfort level in terms of affordability, and whether you can live with the price valuation changes in the property or not.
Which are the countries you are bullish on, in terms of returns and investment perspective?
The fund’s portfolio is overweight in the Asia Pacific region, which implies that this region is likely to see strong growth. However, given the deep discounts to NAV in North America and the UK, it is possible to see strong performance in these Markets going forward. As the REIT structure spreads across Asia, the real estate securities market will continue to deepen.
Why should an investor invest in a fund focussed overseas, when there are still opportunities untapped at home?
When we look at the Indian market, we see people taking on extreme risk. While our country, Economy, and stocks have gone global, people continue to invest locally. You earn in this Economy, your pensions are in this Economy, and your investments are also in the same Economy.
So, you are running a high concentration risk. People are already fully invested in India, the issue here is diversification.
Lastly, in terms of investment opportunities, what impact do you see in the scrapping of the ULCRA act?
Since this is a new development, I can only comment on the basics - the repeal of ULCRA obviously releases more land for development in Mumbai, which is a positive development for developers. However, it could conversely put some downward pressure on land prices and deals, as more land has been opened up for development.
No comments:
Post a Comment