Tag

Private Equity Archives - Red Ribbon Asset Management

Affordable housing and slum redevelopment

By | Archive, India, News | No Comments

Slum dwellings across India’s urbanised areas have been around for as long as many can remember, growing up alongside wealthy parts of the city as the low paid workforce required to keep those cities working, struggled to find somewhere affordable to live. Indeed, in a country with a population of 1.37 billion, according to the latest UN figures, at least around a quarter of the urban population are living in slums, many of whom don’t have reliable access to sanitation, electricity or homes that are safe to live in.

Recent fires in neighbouring Bangladesh, in the capital city and a coastal slum area, highlight the problems of slum dwellings and the dangers they pose to those living in them and the surrounding areas, too.

In recent years, a number of ways to improve or even remove the slums of the Indian sub-continent, have been discussed. One previously popular way to modify India’s – and other countries’ – slums, was to remove them completely, bulldoze them out of existence. However, while this method does eradicate many of the issues that arise with slum developments, it also displaces everyone who lives in them.

After assessing different approaches to solving the problem of slum areas, which has gained in importance amid the increasingly rapid urbanisation of India, two answers have proven popular enough to take forward. They are:

  • Improve existing slum areas, without displacing those existing households and eradicating their investment.
  • Find ways to build affordable housing across India’s cities for lower income households to live in.

With those solutions now being formalised by the Government, the next step is to find a way to finance these methods, in order to achieve the target of creating affordable housing for the entire population by 2022.  

PPP and affordable housing

Among the ways in which India is seeking to provide enough affordable and safe housing for its growing urban populations, is through Public Private Partnerships (PPP). As the value of land is high in cities and nearby urban areas and can account for up to 60% of the total cost of housing developments, the Government has sought a way to lower the cost of urban real estate. They do this by allocating a proportion of publicly owned land to be developed by private companies and investors.

This vehicle has been created to encourage private real-estate investors, who previously have predominantly favoured higher income developments, to take an interest in India’s affordable housing sector. The potential rewards are three-fold:

  • Affordable and safe housing in the right areas, for India’s fast-developing urbanisation.
  • The beginning of the end of the growth of slum areas in urban regions.
  • Reliable and attractive returns for investors.

There are a number of ways in which this works financially for investors, all of which result in a notable increase in affordable housing across the areas of India in which it’s required.

Coupled with the improvements to investing and doing business in the country, the option of affordable housing and real-estate as an investment vehicle is one that is beginning to appeal to a growing proportion of investors. Both from overseas and within the country, too.

How to access India’s affordable real estate investment opportunities

Of course, knowing about and understanding the real-estate opportunities in a country whose population is undergoing a fast and significant change, is one thing. Accessing those opportunities in a secure and moderated fashion is quite another.

However, doing business in India has become easier, more transparent and accessible to all kinds of investors. Among the ways in which investors can benefit from the opportunities in India’s real estate sector, is through Funds specifically created for the purpose.

According to data from JLL, the value of investment grade, real estate projects under construction, has risen from $173.9 billion in the fourth quarter of 2012, to $242.6 billion in the second quarter of 2018. That number doesn’t take into account future options, plans or approved, shovel ready projects.

Red Ribbon will soon launch its own Indian Real-Estate Fund, to bring investment access into the sector to those investors interested in diversifying their portfolios with something that will benefit from Government support and help provide a solution to a real need from the existing and changing population.

As with all of Red Ribbon’s asset management options, sustainability, eco friendly and broadly beneficial outcomes form the basis of most of the assets that make up the Fund. Providing affordable and sustainable properties for the millions of people moving from rural to urban living is a challenge that can be met, provided every investor in Indian real estate takes it into consideration.

 

Red Ribbon CEO, Suchit Punnose said:

India’s Government has shown real willing to support the rapid urbanisation of the country and encourage a country in which investors can feel confident in doing business, both from a transparency and prospective returns, perspective. Red Ribbon is proud to be the forefront of supporting an economy that is of major importance on a global scale, while working to create a country with real prospects that future generations can enjoy and reap the benefits from.

Our Indian Real Estate Fund will help provide affordable and sustainable homes for the millions of people moving from one way of life to another. It also gives investors the chance to create a well-balanced investment portfolio, with exposure to a growing and developing economy.

Saving for the Future - India GDP Savings Ratio - Red Ribbon Asset Management

Saving for the Future: India’s Dynamic Asymmetry

By | India, News | No Comments

Saving for the Future: India’s Dynamic Asymmetry

India: in the space of a single generation the subcontinent has increased its savings to GDP ratio from 13.9% to a simply astonishing 30%

The domestic savings account played a key part in Japan’s economic miracle: with an increasingly wealthy and traditionally conservative population storing up personal wealth at unprecedented levels, the country achieved one of the highest savings to GDP ratios anywhere in the world by the mid 1980s and Japanese business wasn’t slow to draw on it to fuel its increasingly ambitious investment programmes. The rest, of course, was history. And Japan still has one of the highest Savings to GDP ratios in the world at 24.4%, but it’s no longer the highest ratio. That prize now goes to India: in the space of a single generation the subcontinent has increased its savings to GDP ratio from 13.9% to a simply astonishing 30%. Compare that to the United States, which is languishing at 16.9% and the United Kingdom at 14.8% (less than half of India’s current figure).

India Savings-GDP ratio - Red Ribbon Asset Management

India Savings-GDP ratio – Red Ribbon Asset Management

And as we know from Japan’s savings fuelled economic miracle of the 1980’s, these things really do matter: in a resurgent economy such as India, companies simply cannot do without a resilient and liquid stock of capital to fuel forward investment, and history has taught us time and time again (most recently, again, in Japan) that the best source of liquid capital is the liquid cash, in a form capable of being made available commercially through public equity and capital markets. Conversely, history has certainly taught is that a wholly credit fuelled investment surge is not to be trusted, even in the medium (which is no doubt why the United States and the UK are running at such historically low savings to GDP ratios at the moment).

Now that India has taken the lead in this crucial metric, it is interesting to note too the gradual process of increased capitalisation which is inexorably turning its huge pool of cash into investment capital for future growth. For example, there are at the moment more than 7,800 separate stocks listed on India’s exchanges, but less than 3,000 of these are actively traded; and by parity of reasoning, bond trading (a key indicator of the vibrancy of any capital market) accounts at the moment for less than 75% of overall market activity in India. This all points to an obvious and marked under participation by the subcontinent’s population of over a billion (and rising), with only 18 million of these actively investing in equities and ten of the major urban conurbations by themselves accounting for more than 80% of trading volumes. Economists would call this a dynamic asymmetry: an unstable basis for positive future growth.

Because current levels of participation are not a problem for India but rather, a mark of just how much can still be achieved in a non-saturated market, with a huge supply of liquid capital and a Government committed to driving forward investment programmes on a scale which would have been beyond our wildest dreams even twenty years ago. In a saturated market with little or no short-term liquidity it would be a very different matter, but that’s a problem more likely to be found these days in uptown Manhattan than downtown Mumbai.

Which is why domestic saving volumes are likely to play a key part in India’s explosive growth over the coming years, underpinning the key strengths of Red Ribbon’s Private Equity Fund which aims to achieve both dividend yield and capital growth by investing in Indian Businesses which benefit from improved capital liquidity trends in this, the fastest growing Growth Market in the world.

Private Equity and Indian Real Estate: The Bigger Picture

By | India, News | One Comment

Private Equity and Indian Real Estate: The Bigger Picture

Stag Investors buy into the “grey market” before a Listing takes place, selling out immediately after the stock is traded in the hope the pre-market has understated the share price. The Stag Investor is the Mayfly of the Financial Markets; here and gone in a moment, paying little if any attention to the actual performance of the company in which he was so briefly a shareholder. Private Equity (PE) sits at the other end of the spectrum: investing for the long run, often taking a controlling position on the board and shaping the company’s future in the hope of long-term gains. If the Stag Investor is our Mayfly, Private Equity is more of a Galapagos Tortoise.

So it is interesting that Private Equity Investment has now emerged as one of the cornerstones of the resurgent Real Estate Sector in India. At the very least it speaks well for the Sector’s long-term prospects.

More or less stagnant up to 2014, the PE contribution to Real Estate on the subcontinent has rocketed in recent years (according to Knight Frank’s latest sector report) and is likely to end the year on a record-breaking high of $4 Billion.

Blackstone, a leading Private Equity House, is now one of the largest landlords of office space in India with its recent deals (struck with L&T Seawood and K. Raheja) racking up more than USD 200 Million each; and in overall terms the cumulative PE investment for the first nine months of this year already exceeds the last five years taken together. As Knight Frank note in their report, somewhat archly, “institutional investors have already smelled the coffee”.

Between 2011 and 2014 the average aggregate PE investment in Indian Real Estate was $ 2.1 Billion; that figure rose to $3.3 Billion between 2011 and 2014 (an increase of more than 57%) and the bulk of it was destined for pre-leased office space and industrial properties, which is suggestive (“strongly suggestive” Knight Frank believe) of a trend for new investors to shy away from the risks traditionally associated with execution, regulatory approval and marketing on more conventional “off plan” projects in the residential sector; all of  which suggests that the business and residential segments of the sector are running on different tracks.

But not so fast. That might also give us a clue for one of the key drivers behind the general resurgence of PE interest in Indian Real Estate since 2014, as well as a pointer for the way ahead.

2014 was, of course, the year that Prime Minister Modi’s Government instituted its radical reform programme for the economy; a programme that came to include the Real Estate (Regulation and Development) Act of 2016 (RERA) and a new regime for REIT listings on the Bombay Stock Exchange, culminating in this year’s Goods and Services Tax all of which have combined to turbocharge real estate investment in this, the fastest growing large economy on the planet. So it seems unlikely that the residential sector will continue to lag behind in the manner it has over the past three years. All suggestions are that the two segments of the sector will start to converge.

The Red Ribbon Real Estate Fund aims to deliver income and capital growth in the medium to long term by investing in real estate projects, and Indian real estate in particular; and unlike almost every other real estate fund it is open-ended, enabling investors to exit on notice after the initial three-year lock-in period rather than have their capital tied down for the long term on a conventional private equity model. The Red Ribbon RE Fund offers a unique blend of long-term growth potential with medium-term liquidity.

Read about Knight Frank Report here: www.knightfrank.co.uk/research

Read about the Red Ribbon Real Estate Fund here: https://redribbon.co/investment-products/funds/real-estate-fund/

 

Red Ribbon

At Red Ribbon we understand that the transition towards a resilient global economy will be led by well-governed businesses in mainstream markets, striving to reduce the environmental impact of their production processes on society at large and on the environment as well.

Newsletter