In our previous post Financing
- Funding a RealT, we showed how debt can be used as a vehicle to fund
your RealT project. In this post, we will try and elucidate how one can finance
projects using equity.
Out of the above 3 ways, top 2 are self-explanatory. But let’s
just look at the Real Estate Investors part and REIT in detail.
As can be seen from the above
classification that in real estate, there are various investment fund options.
Let us summarize each of these with one line explanations:
Type
of Investor
|
|
Venture Capital
|
They invest very cautiously in realty projects by
valuing its worth using their models of valuation.
|
FDIs
|
Real Estate sector has attracted a lot of FDI in
India, but recently the trend has been falling. See figure 1.
|
Hedge Fund
|
Though not very popular, but Hedge Funds are
increasingly moving into funding the real estate projects.
|
Insurance Companies
|
They invest in large projects having high returns for
longer horizons which commercial banks generally don’t take up.
|
Pension Fund
|
Another new source of financing in real estate. They
generally fund through mortgage bankers & brokers.
|
An analysis of Real Estate FDIs in India
 |
| Figure 1: Rising FDI share towards the end |
REIT (Real Estate Investment Trusts)
This is an extremely important
instrument in the Real Estate Financing as it pools in the investments from
various investors and then use this fund to finance the realty projects. REITs
is a vast topic in itself and we will share our views on them in our later
posts. But just to explain the basic phenomenon of REIT, refer figure 2.
 |
| Figure 2: Basic mechanism of REIT formation |
Note: We have just touched upon the aspects of Equity financing in real estate, however the details of many of these instruments will be covered in our subsequent posts.
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