SEBI's AIF revamp pushes realty sector into tight corner

CNBC-TV18's Priyanka Ghosh reports that raising funds for the real estate industry will get tougher as market regulator SEBI's revised guidelines for alternative investment funds or AIFs come into force.

Attracting investors has become just that much tougher for real estate funds. Earlier, fund managers could raise amounts starting as little as Rs 1 lakh from multiple retail investors.

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But with SEBI outlining the new AIF norms, these funds now can now only have upto 1,000 investors and the minimum investment amount has to be Rs 1 crore from each investor. According to experts, funds will gave to start changing their strategies in order to raise capital.

Sunil Rohokale, MD & CEO, ASK Group, says, "Raising the bar of minimum investment to Rs 1 crore will impact immediate and short-term fund raising programmes, because by and large, wealth management companies and wealth management arms of banks want retail HNIs to participate into venture capital funds. So funds will face difficulty in raising capital."

Finding high-value investors though, is not the only challenge that lies ahead for those raising domestic corpuses. They now also have to invest 2.5% of the corpus or Rs 5 crore, whichever is higher, to ensure that the managing company's risk is alligned with that of the investor. Moreover, a single investment in a company or a project cannot exceed 25% of the entire corpus.

SEBI has, however, granted existing funds a moratorium of six to twelve months before they get registered under the new guidelines.

In the near term, the ticket size of the big corpuses that companies such as HDFC and ICICI Ventures were looking to raise might be downsized because the pool of investors have shrunk.

This might lead to an increase in cost of funds for real estate companies. But then again, overhauling the AIF norms was also necessary in order to comply with international standards.

Source: www.moneycontrol.com