Realtors face fund shortage: HNIs come to rescue
For some affluent and ultra-rich Indians, the economic slowdown has brought in a wave of opportunities to get huge returns on investment. The ultra-rich Indians(High- Net Individuals) have decided to take a back road and make the most of the economic slowdown by lending funds to the cash-starved real estate developers at interest as high as 25%.
Property developers are left with no choice, other than availing the highly expensive loans from the HNIs. With market demand for commercial space and apartments heading for a fall and the dearth of any new source for funds, has narrowed the options for the developers. Increased cost of construction by 25-30% in the last 4 years in prime cities, in comparison to 20% hike in India capital values have further added to the woes of the realtors.
HNIS on a profit bandwagon
Since returns are much higher in what could be generated from other sources, HNIs take the plunge to invest in real estate projects. Such line of investors prefer to invest directly with the property developers, which offer lucrative returns in comparison to private equity funds. Reportedly, such lenders have been asking for double the collateral and are interested realtors are willing to avail them for 6 months-1 year.
Individuals with investable assets of minimum USD 1 million are tagged as High Net Individuals. As per market survey reports, HNIs invest within the price bracket Rs 50 crore-200 crore in realty segments. Going by CRISIL’s Income and Demographics Analysis, ultra-high net worth individuals have an average net worth of Rs .25 crore.
Why HNIs gained the spotlight?
Property sales in the country, is on the skids due to sluggish income growth, high borrowing costs and sticky inflation. This, in turn, has affected the buying sentiments of the consumers adversely. Furthermore, lack of equity funding and reluctance of the bank to offer funds to high-risk businesses such as real estate have left the developers with no choice, other than the HNIs.
According to market experts, banks are quite stringent in offering money to builders, and this is where the HNIs come to rescue, albeit the high interest rates cannot be bypassed. There exists a huge demand for brigade loans among the builders community and HNIs meets the purpose in the best possible manner.
