HDFC Funds Look At Troubled Realty Projects

Chairman Deepak Parekh said that the property funds of Housing Development Finance Corp (HDFC) and its asset management unit have more than $1 billion of available funding and will look to buy distressed real estate projects.

The funds are yet to buy any projects, but he said there could be opportunities within six months if the current downturn in the realty sector continued.

Parekh said, “I would like to see both my funds, the international and the domestic fund, play a much greater role in takeovers and buyouts of real estate projects which are facing difficulty”.

He said that India’s top mortgage lender, in which Citigroup holds a stake of about 12%, has an $800 million property fund that was raised overseas, and only a third of it is committed.

Parekh said that its asset management unit raised almost Rs 4,000 crore ($900 million) under its real estate portfolio management services business last financial year and has invested only Rs 300 crore.

Parekh said, “I expect that some of the developers who have bought land at exorbitant prices will not have the wherewithal to complete the development”. Further he said, “We will function like an asset reconstruction fund”.

After five years of boom, real estate firms are battling tepid sales and a cash crunch, with buyers scared away by rising interest rates and some signs of softening in property prices.

He said that a lot of developers flush with funds from the realty boom picked up land without setting aside enough for building the property, as they tended to fund developments out of customer bookings. But now the cycle had been broken.

Parekh said, “For the last 30 years we have been dealing with these builders in good times as well as bad times. We have had times when interest rates were 18% to 18.5%. We still survived and we still supported developers”.

“It is not the end of the world if prices come down 20% or 25%”.

One Comment

  1. Posted September 8, 2008 at 11:36 pm | Permalink

    As builders are facing a fall in residential demand, they are trying to woo home buyers with cars, fitouts, parking discounts. Especially the Bangalore property market, which has entered the wooing phase with home buyers being offered gratis cars, lifestyle accessories and clubhouse memberships as inducement. According to people familiar with property market, this initiative is unhealthy. They are doing this as they have put their money into properties at overheated locations and are now desperate to exit. “When looked at closely, these incentives do not have any significant monetary value. Rather, they are psychological encouragement put in place to catalyse the project’s off-take. Gratis offered by investors or speculators is valued around 12-14 per cent of the flat or plot price,” said Mr. Anuj Puri, country head, Jones Lang LaSalle Meghraj. This practice is not unique to Bangalore, but is also practiced in other metros in less-preferred locations and more prominent in Tier II cities. “This phenomenon exists at some level or the other all over the world, but probably not with the lack of finesse and reservations that exist in India’s current real estate scenario,” he added.For more view-

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