Why you must invest in institutionally-funded housing projects

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Fund houses typically invest with developers having a stable track record and skin in the game

Purchasing a property is the biggest investment of one’s life and usually requires immense sacrifice. Most middle-class people dream of owning a house. Buying a property is looked upon as a very simple transaction wherein the buyer pays money (through savings or a bank loan) to the seller for the underlined property. Though it looks easy, the real picture is different.

As a home buyer, you need to run many checks on the property you are purchasing. Unless buyers are diligent and ensure that the property they are purchasing has no encumbrances, has a clean title, they can easily land in trouble. Just by staking your savings and signing on for a bank loan does not guarantee that your dream home will materialise in time. Above all, your lifetime savings are at risk if the property has an issue.

Any person looking at investing in residential real estate would like to invest in a safe and clean property, which can be achieved only by investing in institutionally- funded projects, which are funds raised through external institutional financers like PE funds, financial institutions or banks.

Fund houses typically invest with developers having a stable track record and skin in the game. Proven stability of a developer is a safety net for the buyer in terms of on-time delivery, quality and adherence to contractual obligations. Before funding, they conduct a detailed technical due-diligence to evaluate the approvals and development potential of the project. They also conduct legal and commercial due-diligence including land, title, past borrowing history, delivery record etc to ensure a project will be completed, making it a safe investment.

The fund is handled by professional experts who monitor the project progress on a periodic basis to get real time updates on construction progress. The benefits of investing in institutionally-funded projects are many:

• Funded projects enable customers to rely on the due diligence in relation to title and approvals being done by the institution, which has provided the funds.
• Institutions through their network and contacts conduct a thorough background check of the developers, which is a key investment criterion.
• Institutions invest with reputed developers with good execution track record, thereby minimising the risk of delivery and completion.
• Institutions will ensure availability of money to ensure completion of the project.
• Management plays an active role in business strategy as they have high investments in the project and remain committed until the exit phase.

The real estate sector is one of the most globally-recognised sectors. It is the second largest employer after agriculture and slated to grow around 20-30 percent over the next decade. As real estate is a business with long development cycles, from planning to construction, it takes several years and now is the time to plan for these changes. Buying real estate means it’s a long-term commitment and do not mix it with short-term gains.

Looking forward to 2020 and beyond, the real estate investment industry will find itself at the centre of rapid economic and social change. The growing middle class is increasing demand for specific types of real estate, apart from the demand for affordable housing, smart cities and integrated township projects and REITs.

 - By Rubi Arya, executive vice chairman, Milestone Capital Advisors. The views expressed are her own.