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real estate funds in india - a review
real estate investment

Long Term Realty Funds have not performed to the expectations

In last few years share market has come out of its slow directionless life and has grown to new peaks but real estate sector hasn’t been able to grow and perform. Property pricing has been downwards in big cities also, some estimations suggest that in delhi-ncr area rates have come down by 6-8% over last one year, in the same time frame bengaluru has nosedived by 14 – 15%. It shows that like other investments real estate is also prone to market cycles.

A look at numbers —


8.9 % CAGR in real estate funds for investment tenure of last 5 years

14.9 % CAGR in real estate funds for investment tenure of last 10 years

6.9 % CAGR in real estate funds for investment tenure of last 15 years

17 % CAGR in Blue Chip Equity funds for investment tenure of last 10 years

13 % CAGR in Blue Chip Equity funds for investment tenure of last 15 years

Real estate market returns are mainly affected by liquidity crunch and quality administration of the market. Weak economy of last few years have deeply affected real estate market in india coupled with high interest rates and high costs have kept investors at bay in this sector. Builders are also delaying the possessions because of low sales and liquidity crunch.

Realty Funds are changing their strategy – In the wake of new realities of indian market. Initially these funds thought of a time frame of 7-8 years but now these are looking at a maturity time frame of 3-4 years with revised estimated returns of 16-18% comparative to early estimates of 25-27%. These funds are now focusing on top 4-5 cities and not much on tier 2 or 3 cities where liquidation of properties becomes a problem for funds. Real funds have learned that simply investing in a land or building is not sure way of generating capital growth and they are more lucrative in short term only when these properties are earning rentals.

Risks for investors – As in equity mutual funds or any other investment vehicle, it is the onus of investors that they look for strong performance, management team, asset management company and market conditions before investing. As an investor one has to be till the end in close ended schemes and it might be a possible scenario that returns are not up to expectations. Realty funds in comparison with share market has given low returns in last few years, it shows that real estate investment and returns are cyclical and investors should do basic research before investing.

Advantages of Realty funds – Real estate market is tough to navigate for an inexperienced investor, so people look for real estate funds which are professionally managed and comes under SEBI purview. These funds have been a hit in indian markets since 2005 with close to 1500 to 1600 crores have been invested through these funds in market but exit values are not very robust for investors.

Bottom line is that as Indians are very supportive and confident of real estate market going up perennially, they should take their confidence with pinch of salt and do thorough research before investing.


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