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  1. 1. India Real Estate Fund Parijat Consulting
  2. 2. The Emergent Indian Opportunity <ul><li>Buoyant Indian economy and robust demand for real estate assets </li></ul><ul><li>Exceedingly sharp demand supply gap e.g. existing housing shortage of more than 20 mill homes </li></ul><ul><li>An “NRI/PIO/HNI”centric Real Estate Venture Fund for India could take on all sizes and types of projects without any FDI or Local Regulatory issues. </li></ul><ul><li>Business Model is Development of real estate in key cities. Further leveraging possible with Bank funds if needed. </li></ul>
  3. 3. <ul><li>First close USD 25 Mio?? </li></ul><ul><li>Minimum Investment size USD 250,000 or INR 10 mio ?? </li></ul><ul><li>Target ROI 25% Gross </li></ul><ul><li>Tenure 5 years from date of last drawdown </li></ul><ul><li>Returns from 3rd year onwards?? </li></ul>The Emergent Indian Opportunity
  4. 4. Indian demographics <ul><li>10 th most industrialized country </li></ul><ul><li>4 th largest economy – purchasing power parity </li></ul><ul><li>GDP at current prices Rs. 25.169 billion (US$ 547 billion) (2003-2004) (US$ 1 = 45) </li></ul><ul><li>Foreign exchanges reserves : US$130 billion </li></ul><ul><li>Well-developed banking system and vibrant capital market </li></ul><ul><li>2 nd most populous country in world </li></ul><ul><li>Population 1027 million as per 2001 census </li></ul>
  5. 5. Resurgent India <ul><li>Conducive policies for foreign investment </li></ul><ul><li>      Freedom of entry and investment location </li></ul><ul><li>     Freedom to use technology and production </li></ul><ul><li> Repatriation of capital, dividend, interest etc. permitted </li></ul><ul><li>  Increased urbanization </li></ul><ul><li> Urban population 27.80 % [2001 census] up from 25.70 % [1991 census] </li></ul><ul><li>  Increase in housing requirements </li></ul><ul><li>Increased economic activities –Business Process Outsourcing, retail boom, increasing share of service sector </li></ul><ul><li> Increase in commercial property requirements </li></ul><ul><li>… These will drive real estate development in India </li></ul>
  6. 6. <ul><li> Increasing transparency in real estate transactions </li></ul><ul><li>    rating of projects by rating agency commenced </li></ul><ul><li>Falling interest rates –impetus to increased home loans disbursements </li></ul><ul><li>Increase in total Home loan disbursements by Banks and Housing Finance Companies (HFCs) -76% between 2001-02 to 2002-03 </li></ul><ul><li>(Source: National Housing Bank) </li></ul><ul><li>Ease of Finance for property development </li></ul>Resurgent India
  7. 7. <ul><li>Definition of a (PIO) </li></ul><ul><li> Any person currently holding a foreign passport (not Pakistan or Bangladesh),who can prove his Indian origin up to three generations before (i.e. either the person himself or his father or grandfather or great grandfather must have been a citizen and resident of India), or the spouse of such a person is eligible for a PIO card. </li></ul>Indian Regulatory Environment
  8. 8. <ul><li>100% FDI allowed for development of townships, including housing: </li></ul><ul><li> Minimum 100 acres or 2000 units (under certain conditions) </li></ul><ul><li> Core business of the foreign investor should be integrated township development with a successful record </li></ul><ul><li> Minimum capitalization should be US$10 million for a wholly owned subsidiary and US$5 million for joint ventures with Indian partner </li></ul> NRI/PIO investments have no restrictions (except PIO’s cannot invest in farmland or agricultural property) and are fully repatriable    OCB investment treated as Foreign investment NRI/PIO’s need to invest in their own names    FDI not permitted (except NRI/PIO investment) in shopping malls, office complexes and in residential developments/townships < 100acres  Real Estate Investment Trusts (REIT’s) not permitted  100% FDI permitted in hotels, industrial parks & software technology parks –no restrictions Indian Regulatory Environment
  9. 9. <ul><li>     Real Estate Venture Funds are permitted –a recent development </li></ul><ul><li>   No additional incidence of tax if approved as a VC fund </li></ul><ul><li>      No restriction on repatriability of funds </li></ul><ul><li>    No restriction on uplifting income to the investors </li></ul><ul><li>   Must be registered with SEBI </li></ul><ul><li> Cannot invest in listed companies </li></ul><ul><li> Must obtain RBI approval at investment acceptance stage and investment repatriation stage (formality) </li></ul><ul><li>    FDI norms of Government of India would apply </li></ul><ul><li>   Maximum of 66% of corpus allowed to be invested in equity and maximum of 33% in debt </li></ul><ul><li> Maximum of 25% of corpus in any one project </li></ul>Recent Regulatory Changes
  10. 10. Indian Housing Demographics Source: Larsen & Toubro Limited <ul><li>Housing Shortage >22 Mio Homes </li></ul><ul><li>Likely to increase to over 250 Mi Units in next 10 years </li></ul><ul><li>The National Housing Policy 1998 envisages a shift in the Government’s role from a Builder to an Enabler </li></ul><ul><li>Government is committed to removing barriers to </li></ul><ul><li> Access to land </li></ul><ul><li> Finance and technology </li></ul><ul><li> Public-private partnerships to accelerate pace of house construction </li></ul><ul><li>The Government has set a target of 250,000 rural housing units per year </li></ul>
  11. 11. <ul><li>       The government has stressed on rural housing sector & raised allocation for Indira Awas Yojana by USD 120 million to USD 500 million; targets addition of 250,000 houses per year </li></ul><ul><li>       Reserve Bank of India (RBI) will revise the norms of repayment of rural housing loans by banks – installments can coincide with crop cycles </li></ul><ul><li>       Tax exemption on interest on housing loans at Rs 150,000 per year </li></ul><ul><li>       The National Housing Bank (Amendment) Act, 2000 – speedier method of recovery of dues from the defaulting borrowers through recovery officers </li></ul><ul><li>       Reduction in risk weight for Housing Finance Companies (HFC’s) to 50% from 100% </li></ul><ul><li>Increased HFC’s exposure to housing sector due to higher quantum of capital </li></ul>Indian Housing Demographics
  12. 12. Indian Commercial Real Estate <ul><li>USD 2Bn Investments in Malls and Multiplexes in 5 years </li></ul><ul><li>Catalysts </li></ul><ul><li> Shift in urban demography </li></ul><ul><li> Favorable tax regime for multiplexes </li></ul><ul><li>IT/ITES to generate infrastructure investment of USD 0.5bn over 5 years </li></ul><ul><li> Mumbai, Delhi, Bangalore, Chennai, Pune and Hyderabad to witness investments </li></ul>
  13. 13. Indian Commercial Real Estate Multiplex screens planned in various states   States No. of Screens Maharashtra 150-200 Gujarat 50 Delhi 50 Uttar Pradesh 100-150 Rest of India 550-650 Source: CRIS INFAC
  14. 14. Indian Commercial Real Estate Explosive Growth <ul><li>Demand </li></ul><ul><li> Approx. 20 Million sqft in 2004 driven by the IT/ITES sector growth </li></ul><ul><li> Expected to continue growth at this minimum level for the next 3-4 years. </li></ul><ul><li> All India first quarter space take up in tier I cities (including Pune) was approx. 6.4 Million sqft </li></ul><ul><ul><li>Supply </li></ul></ul><ul><li> New supply over the next 18 months in the range of 18 -20 Million sq ft driven by the IT/ITES sector </li></ul>Contd....
  15. 15. <ul><li>Approx. 100 Million sq ft of demand expected over the next 5 year period </li></ul><ul><li>Strong demand for developed industrial plots and undeveloped industrial land in major cities. </li></ul><ul><li>Shift of industry dictated by: </li></ul><ul><li> Sales tax/excise/income tax concessions in developing areas e.g. Uttranchal and Kutch district of Gujarat </li></ul><ul><li> Locational advantages in areas close to major airports/ports e.g. Gurgaon </li></ul> Environmental concerns e.g. shift of industrial units out of Delhi as per Supreme Court directive  Cost concerns e.g. relocation of industries out of centre of Mumbai & freeing up of mill lands  Availability of infrastructure such as skilled labour& power  Proximity to customers and/or vendors
  16. 16.   The Parijat Real Estate Fund <ul><li>  Exclusive Investment by NRI’s/PIO’s and HNWI’s </li></ul><ul><li>  No investment solicited into the scheme from foreign companies & non-Indian investors to ensure total flexibility in taking on all sorts of projects without restriction </li></ul><ul><li>Set up as a scheme under PARIJAT CONSULTING (a venture capital fund) incorporated as a Trust in India and registered with SEBI </li></ul>
  17. 17. Operating Structure of Domestic Fund   Board of Advisors Parijat Consulting Parijat Consulting Advisors Parijat Consulting India Venture Capital Fund (Trust Structure) SEBI Domestic/NRI/PIO/ Investors Scheme - Parijat Consulting Project Project Project
  18. 18. The Parijat Fund <ul><li>Units to be subscribed by investors on a private placement basis </li></ul><ul><li> Minimum investment per investor is INR 10 mill (USD 250K) </li></ul><ul><li> 25% payable on application and balance over maximum of 12 months </li></ul><ul><li>Who can invest? </li></ul><ul><li> Non Resident Indians/ Persons of Indian Origin </li></ul><ul><li> Indian residents </li></ul><ul><li> Indian corporates </li></ul><ul><li>  </li></ul><ul><li>Target Fund size – INR 2200 mill (USD 50 mill) </li></ul>
  19. 19. The Parijat Fund <ul><li>Minimum aggregate commitment for first close  between INR 675 mill (USD 15 mill) and INR 900 mill (USD 20 mill)  All commitments will be void if minimum amount not achieved </li></ul><ul><li>Duration – 5 years from date of last drawdown </li></ul><ul><li>Costs : </li></ul><ul><li> F ixed Management fee of 2% p.a. of committed capital </li></ul> 20% of Gains as Performance Fee based on hurdle rate of 10% as follows:  nil if gains are < 10% p.a.  20% if gains are >= 10%p.a.  Costs of due diligence, tax, accounting and legal charges to be incurred in the course of business
  20. 20. <ul><li>Target Returns for investors :  </li></ul><ul><li> Gross Return on Equity of 25% p.a. is projected in INR terms </li></ul><ul><li>Investments will be in conformity with SEBI Venture Capital Regulations  </li></ul><ul><li>Exit options for the investors </li></ul><ul><li>   Hold till fund closure </li></ul><ul><li> Sale to other investors </li></ul>The Parijat Fund
  21. 21. <ul><li>Tax Issues: </li></ul><ul><li> SEBI approved VC fund  pass through entity with tax free status  no additional tax burden on investors </li></ul><ul><li> Interest/ capital gains are taxable in the hands of the investors at time of distribution </li></ul><ul><li> Dividends taxable at the project level and there is no tax liability on the investor </li></ul><ul><li> Long-term capital gains on transfer of units applicabley but may be exempted if gains are invested in certain specified securities/ assets for a specified period of time </li></ul><ul><li> No liability to Wealth-tax or Gift Tax on investors </li></ul><ul><li>Investor Profile  </li></ul><ul><li> Non-Resident Indians (NRI’s) </li></ul><ul><li> Persons of Indian Origin (PIO’s) </li></ul><ul><li> High Net Worth Indian Nationals (HNI’s) </li></ul><ul><li> Corporate Houses from India </li></ul><ul><li> Financial Institution from India </li></ul>The Parijat Fund
  22. 22. The Focus area <ul><li>  Focus on the major cities </li></ul><ul><li>Will partner reputable Indian developers in new or existing development projects </li></ul><ul><li>Will nurture and develop contacts and alliances with key players in the industry </li></ul><ul><li>Will look for innovative and “out of the box” development ideas including: </li></ul><ul><li> Acquisition of land held by sick companies and by financial institutions </li></ul><ul><li> Providing development expertise and capital on leaseback deals </li></ul><ul><li>Sector priorities </li></ul><ul><li> Residential & residential townships </li></ul><ul><li> Commercial projects including IT/ITES </li></ul>
  23. 23. <ul><li>Limit exposure per project to a maximum of 25% of total fund size </li></ul><ul><li>If additional equity capital is required on a project – first offer to investors before others significant co-investment opportunity </li></ul><ul><li>Use of debt to leverage capital thereby enhancing overall equity returns target effective 1:1 debt/equity ratio </li></ul><ul><li>T he NRI/PIO/HNI focus </li></ul><ul><li> Allows complete flexibility in taking on all types and sizes of underlying projects </li></ul><ul><li>Exploits a window of opportunity for NRI/PIO/HNI’s. </li></ul><ul><li>Real opportunities for co-investment with the fund in booming India Real Estate Sector </li></ul>The Focus area
  24. 24. THANK YOU