Debenture and private equity structures are winning
On an average, more than half of the clients of Royal Bank of Scotland Financial Services (India) have 40 per cent of their wealth in real estate. Structured investment by real-estate funds, non-banking financial companies, domestic and private investors is now a flourishing segment.
This kind of investment vehicle gained importance when real estate private equity (PE) funds invested through the pure equity route in early 2007. But by 2012, investors started losing confidence in real estate PE funds due to uncertainty in returns and long tenor. These instruments then came in the form of non-convertible debentures (NCD) and compulsory convertible debentures (CCD).
Currently, the structured segment (equity, debt, mix of both) is valued at approximately $2 billion (listed and unlisted). The recent announcement to allow pass-through status to real estate investment trusts (REITS) presents an opportunity for the structured route. Investors are now looking at pure debt or a mix of debt and equity structures. A secured NCD typically has a tenor of three- to four years. However these instruments can carry a high risk and investors should review valuation methods and market trends before investing.
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