Business Today

No Exit

Most real estate funds, set up a decade back to help developers with land deals, are facing an existential crisis. They need to take a re look at their investment strategies to generate positive returns for investors

The year was 2005. Massive growth in IT services in the late 1990s had pushed up demand for residential and commercial real estate. While the demand was rising, there wasn't enough capital to meet the realty requirements of residential and corporate users. The government decided to open real estate to foreign direct investment (FDI) to help the capital starved sector.

Alongside, in 2006, the banking regulator, the Reserve Bank of India (RBI), prohibited banks and housing finance companies from funding land purchase transactions of developers. Real estate players did not feel the pinch immediately as the gap was bridged by global private equity players, which were using the FDI window to pump in money.

Not surprisingly, between 2005 and 2008, close to $12 billion came into real estate from marquee global investors and went into futuristic projects like Special Economic Zones and luxury hotels. But the global meltdown in 2008 brought this capital inflow to a grinding halt. And the RBI's direction to banks not to fund land hit developers hard.

It was at this time, when both banks and global investors had pulled out of

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