such product is the rental yield fund, that offers an excellent opportunity for investors to get a fairly attractive rate of return with low risk. This is so on account of the following reasons:
The rental yield fund does not involve any development/ execution/ approval/ title risks.
A significant part of the overall returns are known at the time of acquisition in terms of net entry yield. Investors also get recurring income stream by way of distribution of rental income.
Investors realise that the yield fund holds title to the property hence there is a tangible asset backing the investment.
The newly laid AIF guidelines have alluded to listing of the units after final closing and hence investors see liquidity option that is available to them unlike the long lock-in of 6-7 years in a close-ended fund.
Fund managers now devise a competitive fee structure, which is appreciated by investors. Investors do not mind sharing upside with fund managers as long as they make a decent return.
Commercial real estate market across cities in India has stabilised and most of the precincts are expected to witness robust absorption, rent escalation and yield compression in the coming years. In this perspective, since the current valuations of commercial properties are fairly attractive as rentals are bottoming out, the overall returns can be reasonably attractive.
Given that interest rates have peaked and are expected to decline and risk premium for commercial real estate sector is expected to decline in the coming years, yield compression expected on investments in commercial properties can be robust. As such, this is the right time to invest in commercial properties and hence yield fund.
The yield fund combines the certainty of a regular rental income and potential for attractive capital appreciation.
In sum, while fund raising is never easy, a rental product addresses investor requirements and concerns in a holistic manner and hence is finding favour with them.
—The author is CEO and MD, Azure Capital Advisors