Mortgage-backed securities- The new mantra for developers
The slump in the real estate sector in the last few years had hit the property developers very badly and now they are taking measures to raise funds by selling bonds backed by rental income from shopping malls and offices they own to institutional and high net-worth investors. These funds are raised by many developers by bundling their commercial properties, including retail malls and office properties against the rental income they earn from such properties. These bonds have a lock in period and they mature between 7-11 years and the investors get a handsome coupon payment.
On April 30, DLF Ltd, India’s most valuable property developer mentioned that by selling such bonds, they will raise close to Rs 3,000-3,500 crore in this financial year. The developer has already raised Rs. 525 crore by selling securities backed by rental income from a luxury mall in south Delhi, owned by its unit DLF Emporio Ltd.
Mumbai-based realtor Phoenix Mills Ltd (PML) mentioned that they too are planning to sell debt securities backed by rentals from their Phoenix Market City project located in Velacherry, Chennai. Atul Ruia, joint managing director of PML is trying to reduce their debt burden by raising close to Rs.300-400 crore through the sale.
The developers are opting for this method because the cost of such fund raising is also marginally cheaper than the bank loans.
Source- Mint
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