Showing posts with label venture capital. Show all posts
Showing posts with label venture capital. Show all posts

Financing the Real Estate by Equity

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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