Wish to know in case your AIF in actual property is the appropriate one? Ask this query
Appreciation. A word that drives most conversations regarding growth and investment in the Indian real estate (RE) sector. Whether you are buying a home or a commercial property or you are a largescale investor hunting for a strong alpha on your money, you want your investment to ‘appreciate’.
Many factors dictate how well your project appreciates over a period of time. Key factors are the actual location of your project and the socio-political environment as well as developmental plans drawn up by the authorities, for a 10-, 15-, and 50-year horizon. These plans determine the category of the consumer that the project is pitched to. It also impacts the resource planning as well as utilities and facilities planned for it. This will impact not only the overall cost but also the percentage growth to be expected by the retail consumer over the years – your appreciation.
As a retail property buyer, you concern yourself with a healthy rate of appreciation. But, clearly, this rate of appreciation depends on your point of entry into the market – of when you made your investment and where. For example, the first 9 months of 2022 saw 40% volumes growth in the housing market backed by strong demand, rebound in business activity, and increasing urbanisation. If you buy a property today, will it appreciate consistently at the same rate over a longer period? You can’t say for sure, right? That is the dilemma a retail consumer face.
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Instead, if you are a large-scale investor looking for opportunities, your problems are slightly compounded by the high stakes you hold. You want to take the alternative route but don’t know which one to choose. You are looking for a valid point of comparison among the AMCs you are considering. This is important because the success of your project and that of your investment portfolio a few years down the line depend on you making the right bet today. It is a tough task.
Many financial institutions attempting to do the same see little success because they miss out on the actual role of an AMC in this field: active management of the asset. Actively managing a project means having a stake in the operations and management, financial planning and management, as well as go-to-market strategies of the project. An example of having skin in the game.
This is one of the key reasons why some of the biggest AMCs in the country are struggling to deliver on what their AIFs promise. As a result, investor confidence level stays low.
This has a domino effect on the overall market.
It keeps many investors from making good of the real opportunities that exist in the RE sector by deploying large-scale where needed. Thus, a whole lot of times, projects fail to take off or get stuck in limbo. The end-consumer ends up feeling dissatisfied and anxious, which then results in the demand-supply scenario playing to the extremes. At times, the inventory piles up despite prices being low and at times the prices skyrocket.
The government has tried to help the sector grow through legislations such as the RERA Act, amendments to the Benami Act and more, increasing transparency and accountability. However, more needs to happen as the RE sector is entrenched in several age-old practices and the pace of change is slow.
This has been the story so far. The future will be different mainly because of AMCs partnering with players driven by proptech. Proptech helps AMCs ‘asset manage’ at scale and with great transparency and ease. Like how Integrow is partnered in its growth journey by Aurum Proptech. This scale of collaboration gives AMCs unique abilities to build leverage through data and relationship capital in a market that values leverage more than anything else.
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Their AIFs stand a significantly greater chance of successful growth simply because they actively manage their asset enabled by proptech. BlackRock has blazed the trail for Alternative investors in the US in the same way.
AMCs have on board experienced professionals from the RE sector, governance structures that codify rules and approach to due diligence, sustainability, and more such aspects which are key to development of projects. They have the technological expertise to build and deploy a variety of tech tools that increase customer serviceability and data access & transparency with respect to operations, market demands, and general growth scenario.
AMCs actively managing their asset are keeping tabs on resource allocation and utilisation, hedging costs relative to market performance, investing in market research and ways to enhance the consumer value proposition, building relationships with key stakeholders, and more.
This increases the chances of the project: being pitched to the right consumer; being completed within stipulated costs and time; being partnered by prospects aligned to the stated vision. For example, Bengaluru has steadily witnessed scaling of projects aimed at NRIs and its increasing population of tech migrants. Its RE sector has optimised the proposition for this consumer segment by tapping into the knowhow of the local market.
These benefits trickle down to the end-consumer or the retail buyer, which then leads to the developer brand getting a good reputation in the market and enabling them to grow their business. Proptech makes these operations data-rich and more effective in the long term at delivering sustainable alpha to their investors. In turbulent times represented by inflation and market volatility, these AMCs become even more of a trusted partner. As such, they will be leading the transformation of India’s real estate sector over the coming decade. An ‘appreciation’ that is surely due in the near future.
(By Ramashrya Yadav, Founder & CEO, Integrow Asset Management and Director, Aurum Proptech Ltd. Views expressed above are personal)