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Rich investors seek high realty returns

This article was posted on Oct 20, 2011 and is filed under Market News

HNIs pick, sell and buy back products that offer returns of more than 20% a year on investment.

Products structured on real estate and promising over 20 per cent annual returns are gaining popularity among wealthy investors.

These products, sold by wealth managers to their high networth individual (HNI) clients, could have land or unfinished properties as underlying assets, with a buyback agreement after a certain number of years. With a minimum investment of Rs 10-15 crore, these products are sold to a small number of HNIs.

  • These products allow exposure to real estate without actual possession
  • Wealth manager pools money from a small group of investors
  • Lend to developers of real estate projects
  • Developer transfers title to the investors
  • An agreement of buyback at a later date is also inked
  • Buyback price offers internal rate of return of up to 20 per cent for investors

Real estate developers, who are finding it difficult to get funding from banks, are raising money from wealthy investors through such products.

In one such product structured by the wealth management division of a domestic brokerage, four wealthy clients of the firm have invested Rs 10 crore each in a portion of an unfinished property in Mumbai. The developer has transferred this portion of the property in the names of these investors at almost half the prevailing market rate. The developer has also signed a separate agreement with these investors to buy back the property after three years, with an annual internal rate of return of 20 per cent. If the developer doesn’t buy back the property after the lock-in period of three years, investors can sell this property in the market.

For more visit: Business Standard

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