Institutions bet big money on real estate projects in smaller cities

Developers in tier-2 cities have started getting institutional funding after the Covid-19 pandemic led to a housing and commercial space boom in smaller cities, realtors and fund houses told ET.
Developers like Sushma Group, Bhumika, and Omaxe, which primarily have operations in tier 2 cities, have recently received funding and are in talks to raise more funds for the next phase of development.

"With the increase in internet penetration, adoption of technology and Covid-19, tier 2 cities are gradually increasing their contribution to the overall GDP and real estate, which is one of the largest contributors to GDP," said Sharad Mittal, director and CEO of Motilal Oswal Real Estate (MORE). "While our focus will remain investing in tier 1 cities, we are also looking at investing in select tier 2 cities."

MORE made a ₹100-crore investment in Chandigarh in a residential project with Sushma Group, one of the largest developers in that market, in the quarter ended March. "We will continue to explore such opportunities in the future. However, we will remain cautious and selective," Mittal said.

As a fund, MORE is primarily focused on investing in tier 1 cities in India. Till date, it has invested in over 100 projects and obtained close to 50 exits from tier-1 cities.

Real estate developer Bhumika Group, which is constructing malls in Udaipur and Alwar, recently raised close to ₹100 crore between debt and two Lease Rental Discounting (LRD) transactions. The company is in talks to raise another ₹200 crore in debt to fund construction of phase 2 of its 3.5 lakh sq ft retail space in Udaipur mall.

"We are now getting a better rate of interest and large funding institutions have shown interest in giving fund. Demand for organised retail has gone up and with more projects being expected, developers will need funding to sustain the momentum," said Uddhav Poddar, MD of Bhumika Group.

New Delhi-based real estate developer Omaxe recently raised ₹440 crore from Varde Partners, a global alternative investment firm, for expediting construction and delivery of its projects as well as investment into new projects.

The majority of the company's projects are in tier 2 cities and it is present in 27 cities across eight states: Uttar Pradesh, Madhya Pradesh, Punjab, Haryana, Uttarakhand, Rajasthan, Delhi, and Himachal Pradesh.

According to a report by Savills India, private equity investment inflows into the Indian real estate sector stood at $1 billion during Q1 2022, almost five times the quantum recorded during Q4 2021.