India’s Prime Real Estate plans $500 million fund

Indian fund manager Primary Real Estate Advisors is planning to launch a fund worth as much as $500 million, probably in the second half of this year, but said it will tread carefully as the country’s property boom stutters.

Foreign investors have taken advantage of such funds to rush into property development in India since it eased rules on inward investment in the construction industry in early 2005, sparking rampant land speculation and a near quadrupling in prices.

But despite signs of a slowdown — home sales volumes have fallen by one-fifth in Mumbai and 40 % in Bangalore in the last year — the head of Primary Real Estate, Ashwin Ramesh, is convinced that North American and European investors will invest.

“We would typically underperform in a raging bull market but overperform in a flattish market.”

Ramesh expected to launch the new fund within six months to a year, and hoped to raise between $300 million and $500 million.

“At the moment there’s interest in North America and London, but we’re in touch with people all over the place,” he said, adding that he was busy expanding a team that is now investing a $32 million fund closed in mid-2007.

Primary Real Estate would aim for internal rates of return of 15 to 20 percent, Ramesh said, below the usual 20 to 25 percent often advertised by funds in Asia’s up-and-coming property markets of India, China and Vietnam.