Unable to exit from investments, a clutch of real estate funds has been informing investors the tenure of the schemes would be extended by a year. These include Piramal Fund Management (PFM), ASK Property Investment Advisors, Milestone Private Equity and Aditya Birla Real Estate Fund.
Weak demand has hampered exits while in some cases the projects have not taken off for lack of approvals or litigation. PFM had sought an extension for its Indiareit Fund Scheme V since it was not able to exit some projects. Aditya Birla Real Estate Fund-I managed by Aditya Birla Sun Life AMC is in the process of liquidation, having failed to secure an exit from 8 of its 13 investments.
In a letter written to investors, reviewed by FE, Aditya Birla said that the fund’s life was extended twice for one year each and the extended life of the fund expired on August 31, 2018.
“With the expiry of its extended life, the fund is in the process of liquidation. To fully liquidate, the fund has been reaching out to market participants and prospective buyers to purchase all the remaining investments held by the fund. However, responses from these prospective buyers have been tepid…the fund is aiming to liquidate the entire investment portfolio on a best effort basis by July 31, 2019, and in any event no later than August 31, 2019,” the letter said.
In the audited financial statements for the year ended March 31, 2019, the fund has been valued at a net asset value (NAV) of 0.89X basis the valuation of investments done by an independent valuer. The real estate fund has returned a total amount of Rs 601 crore, which is approximately 57% of the initial investment to its investors.
According to sources, ASK Real Estate Special Opportunities Fund has also sought extension from investors citing demand contraction and liquidity constraints faced by developers. It is understood to have received the support of the majority of investors.
Sunil Rohokale, managing director and CEO, ASK Group, told FE, “The extension happened last quarter and 90% of investors have already given their consent. Returns of the fund are good and there are three to four part exits and two full exits are scheduled”.
ASK had raised $171 million in June 2012 through ASK Real Estate Special Opportunities Fund – I and investments have been made in Mumbai, Pune, Bengaluru and Delhi-NCR.
A newsletter on Milestone Capital Advisors’ website for the quarter of January 2017-March 2017 said the fund is working with its various developer partners on achieving exit from its investments. “However, we anticipate to completely divest from all portfolio investments over a period of 6 -12 months. In light of the ongoing efforts to exit at optimal valuation, the fund believes it is necessary to extend the tenure of the Fund by one year till July 2018.”
While Aditya Birla did not respond to an e-mail seeking a response, a mail sent to Milestone remained unanswered till the time of going to press.
Investors are being told the sector has been facing headwinds over the last few years while regulatory changes such as RERA and GST, though beneficial in the long run, have hampered demand and absorption. “Some of the established developers have been embroiled in protracted legal issues, creating further discomfort among consumers. The recent NBFC crisis has resulted in reduced liquidity in the financial system, adding further stress on the real estate sector. As a result, potential real estate buyers have turned extremely cautious, further reducing demand,” a letter from Aditya Birla to investors said.
The current inventory is nearly three years of stock across markets. The unsold residential housing stock was a staggering 7.9 lakh units at the end of March 2019 versus 9.18 lakh units in the financial year ended March 2017, according to PropEquity. Inventory levels as a result have risen as supply has outstripped sales.