With a target of getting an annual return of 30 per cent, Redfort Capital has come up with Redfort Land and Realty Fund. The company has tied up with two banks for attracting investors. In a candid conversation with our correspondent, company’s director Parry Singh talked about the fund and the future plans of the firm. Excerpts:
Tell me about the newly launched Redfort Land and Realty Fund.
This fund is for the domestic market. We are looking on land banking. We have earlier acquired some land at a better value. And our portfolio will be diversified in a way that we will provide profits to our investors on the basis of land purchased across India.
In India there are no real estate vehicles; our fund is a way to gain diversification. We have received approval from the Sebi for this. For the same we have tied up with the ICICI Bank and ABN Amro Bank.
What is the lock-in period for this fund?
It is for five years.
So what are the exit modes for investors?
There are multiple exit routes. First we buy the land and then sell it at a profit; second, we build corporate campuses under a JV and lease the spaces; and third we make residential apartments in a joint venture with a developer and then sell the units.
How will an investor gain from this?
Investors will be the shareholders in the fund and the fund eventually buys land across India. Investors will then earn profit over the properties purchased. They will earn a dividend annually. For example a high net worth individual based in Delhi might face problems in acquiring land down south as his approach is limited to NCR. But the fund can facilitate this easily as we have a pan-India presence.
What kind of returns are you looking at?
We are looking at an annual return of 30 per cent.
You have decided to be selective about your investors, and you are looking at under-valued land. Why this kind of constraint?
We cannot go to the market. We are looking for investors in the bracket of Rs 25 lakh to Rs 50 lakh. And the land we are looking at is definitely a prime one but they are bought at a lesser value. There is very less liquidity in the market. Nobody can pay such huge price over a piece of land. The price appreciation on a plot is more than that compared to a flat. And we guarantee faster returns than a bank.
How much land bank you have?
At present we have some 1,100 to 1,300 acres of land. These are in patches in cities like Bangalore, Hyderabad, and Chennai. Kolkata would be our very next target, where we are also planning some project.
You will also focus on redevelopment projects in Mumbai. Why have you chosen such projects?
Look, in Delhi there is no constraint on expansion. There are a number of small townships and satellite towns that can be included in the NCR. There is lot of scope for expansion.
And if you talk of Mumbai, only northward areas like Virar, Borivilli, Panwel and Navi Mumbai can be used for fresh development. We take the existing land also because of the FDI rule, which says that developments can’t be done on a land less than 25 acres, which is roughly around 5 lakh sq ft. This much of land is not available in Mumbai. And the value of land is touching a new high everyday. So in Mumbai we are focusing on the redevelopment projects.
You have undertaken deals worth over Rs 7,500 crore till date. Mention some of those.
There are six important ones. There is one residential project in Chennai. Very soon we will launch our project in Kolkata also. We have invested around Rs 240 crore in Hyderabad in a residential project, Indu City on a 100-acre land. For this we tied up with the Andhra Pradesh Housing Board (APHB). Another one is a commercial project on a 20-acre plot in Bangalore. This is the Tech Park Phase II for which we have tied up with Prestige Group. There are two other projects in Bangalore.
Do you think REITs could be a success in India?
Let me first say this that in India many people have misunderstood the REITs. It is actually a tax structure. REITs in India will reduce a level of taxation. For example joint ventures companies should be taxed separately.
But there are problems with implementing REITs. REITS in India are used for investing and building grade A properties. Redfort supports the idea of Sebi that is playing smart by imposing a condition that REITs should not use more than 20 per cent of the money in development. It says that around 80 per cent investment should be in core assets. This provides security. But developers hold the property for long, which is wrong.
Is mezzanine funding a safe mode of investment in India?
Look, mezzanine is in between equity and debt. World over funding is done in debt and mezzanine form and very less equity. For example in US, equity was just 5 per cent during the sub prime crisis. While 95 per cent was through mezzanine and debt. But in India lending has become difficult. So there is more equity. Debt is just 13 per cent in India. Through mezzanine, there is a higher return. There is a big need of mezzanine in India. And when somebody is practicing lending then mezzanine is required. In India, anybody practicing this kind has to get the approval from the Non Banking Financial Corporation (NBFC), which comes under the RBI.
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