Cash-starved Small Players Offer Investors Fixed Returns

With bank credit drying up and private channels of funding getting expensive, several small developers are attempting to mop-up funds from retail investors by offering them a 12% guaranteed return for 5-9 years. Under the scheme, a retail investor has to buy a minimum area in the project and make an outright payment.

Delhi-based Piyush group, which is developing a 4 lakh square feet IT project in Faridabad, is offering a 12% return for nine years, but investor will have to make a minimum investment of Rs 20 lakh for 500 square feet. Piyush Group JMD Mr. Amit Goyal said, “We are offering a minimum guarantee to investors to cover their risk as the project is not yet ready and so can’t be leased out”.

There are several other developers who are offering a similar return for a minimum purchase of 500 square feet. A buyer or an investor would get monthly return till the project gets completed.

Following which, the developer will lease out the space and the rentals, if it exceeds the guaranteed 12%, would either be given away to investor or shared between the investor and the developer depending on the scheme. However, if the rentals dip below the 12% mark, the developer is expected to compensate the investor.

Experts say 12.25% is a much cheaper rate in today’s cash-crunch times. Cushman & Wakefield India director (capital markets group) Mr. Sandeep Singh said, “Small developers are not getting bank loans. Private borrowings at 18% or more is quite risky. So it makes sense for them to borrow it from retail investors at 12%”.

He added that if the developer borrows from a bank, he will have to pay back, but under this scheme he removes risk from the very beginning.