Whether we talk about the 1920s, 1950s, 1990s or 2024, real estate has always been a lucrative asset class that many investors wish to have in their portfolio, right? More like an evergreen choice across age groups and class of investors, isn’t it?
And perhaps the biggest plus point for the real estate in recent years has been introduction of newer concepts like REITs (real estate investment trusts) and FREs (fractional real estate ownership). They are acting as a stepping stones for retail investors like you and me, to enter the real estate market with a relatively smaller amount.
However, there is another interesting concept that has largely remained unexplored in India, especially by retail investors. It is the secured real estate debt as an asset class.
According to a report by real estate giant JLL and Propstack earlier this year, India's real estate sector has a debt financing opportunity of around ₹14 Lakh Crore in the next three years, i.e. 2024-2026 period. Moreover, it highlighted that during the years 2018-23, the total debt sanctions of the real estate sector was at ₹9.63 lakh crore. These massive numbers surely indicate that the real estate debt sector is not only becoming significant in size but maybe also waiting for its potential to soon be unlocked.
But, but, but. Its crucial to keep in mind that real estate debt is a high risk asset class. We will discuss this part later in this article.
Nonetheless, today we introduce the journey and features of the platform Earnnest.me, a fintech platform that makes real estate debt opportunities accessible to individual investors, opportunities that were previously available only to institutional investors. But before we dive into Earnnest’s story, let's first understand what real estate debt means as an asset class. This will help you better grasp the pros and cons of investing in this asset class.
If you prefer hearing to a podcast between Yash and Ashish Khandelia (Founder), please watch the video below.
What Is Real Estate Debt?
Real estate debt refers to loans secured by real estate properties. It involves borrowing to buy, develop, or refinance real estate, using the property as collateral. This can include mortgages and construction loans.
Investors earn returns through interest payments, with potentially less volatility than equity investments. Platforms like Earnnest.me let individual investors invest in quality, regular-paying real estate debt, unlike equity ownership deals from platforms like Strata or hBits.
It's important to note that historically real estate debt investments has been a high risk category and there had been defaults by the real estate developers. Additionally, market and economic conditions can also affect these investments. Though implementation of RERA and IBC regulations few years ago has led to a significant improvement and discipline, investor caution is advised.
If you want to invest in real estate debt, you might wonder how you, as an investor, would earn. The income comes from regular interest payments, making it an attractive option for those seeking steady income.
Furthermore, real estate debt can add another layer of diversification and higher returns to your portfolio, as long as you're willing to accept the higher level of risk as explained above.
Yash has done a video with Mint on this topic, feel free to check it out here:
Corporate Structure & Founders Of Earnnest.me
Earnnest.me, is an online platform of Certus Investment Management Private Limited (also known as Certus Capital), which presents secured, high-yielding fixed income opportunities on alternative assets for investors to review and invest in the real estate debt market.
Earnnest.me was founded in 2021 by Ashish Khandelia. He had also founded Certus Capital in 2018. Group entities of Certus Capital also hold RBI’s NBFC license as well as SEBI’s Alternative Investment Funds (AIF) license.
As per MCA filings (accessed on 25th October 2024), Earnnest.me has three directors:
Ashish Khandelia (Founder & CEO)
Ashish Khandelia founded both Cetrus Capital and Earnnest.me, in the years 2018 and 2021 respectively. Ashish is a veteran in financial industry with over 20 years in the sector, with vast expertise in real estate, private equity, lending and investment banking. The prominent companies in which he has worked include EY, Kotak Mahindra Capital, Morgan Stanley and KKR. Ashish is a CA (Chartered Accountant) by profession, and post- graduated from the prestigious ISB in MBA (Finance).
What Does Earnnest.me Offers?
Here’s one of the investment opportunities available on Earnnest.me (as of 25th October 2024) to help you understand their platform:
What’s noteworthy is that besides showing pictures of the projects and the key aspects of the deal, like annual return, repayment tenure, current tranche, interest payment frequency, etc, Earnnest.me also gives deeper details about reasons to invest in that project, expected cash flow and returns, security cover, borrower background, risks and mitigants, and much more.
What Do We Like About Earnnest.me?
Transparent & Structured Information: By presenting deeper details about a project, the borrower, returns, and especially the risks, Earnnest.me creates a clear and transparent picture regarding the investment opportunity, which can hence assist investors to weigh in the pros and cons, feasibility, etc before putting their hard earned money into any project.
Skin In The Game: An opportunity is presented on Earnnest.me only after it has been fully funded and closed by the Certus’ or its affiliates own capital. Earnnest.me does not collect money or take commitments from investors to make an investment. After the transaction has been funded, Earnnest allows investors to co-invests their money alongside its own investment in every deal thereby adding another layer of trust amongst those who are planning to invest through their platform. Earnnest.me claims a repeat investment rate of 77%.
Due Diligence: Before listing any investment opportunity on its platform, Earnnest.me performs a rigorous due diligence process. The experienced team of Earnnest.me sources deals through its established relationships and reviews each investment opportunity prior to offering on the platform. The evaluation is done through a focused screening process.
Solid leadership: With over 175 years of aggregate experience and expertise in real estate investing and lending, Earnnest has a solid 25 member team under the leadership of its founder Ashish Khandelia. Ashish’s past experience and no history of principal loss over last 15 years in any deals he has worked on adds a lot of credibility to the platform.
Regular Updates: While we haven’t experienced this ourselves, Ashish did mention that investors can see all quarterly updates on the individual debt they are investing in. This update will be around the timeline and progress of the project, financial health of the developer, servicing of the debentures and others.
What Do We Not Like About Earnnest.me?
High Ticket Size: The minimum investment amount on its platform is Rs 10 lakh and as per Ashish, this is by design to prevent an ordinary retail investor to invest in this asset class without having enough financial maturity. Given some of the competitors of Earnnest.me are selling similar NCDs at 1L face value, some investors may find it off-putting. But as ALT Investor, we are actually in line with Earnnest.me.
Unlisted / Unrated Securities: All securities offered on the platform don’t fall under the ambit of SEBI. They are privately placed unlisted and unrated securities. It can get even more difficult to assess the risk as a retail investor.
Conclusion
In conclusion, its fair to say that Earnnest.me is a platform that is aiming to open up the real estate debt market to individual investors, offering them opportunities that were traditionally reserved for institutional investors. The platform provides transparency, due diligence, a solid leadership team and alignment with investor through their skin-in-the-game. However, it is important for potential investors to be aware of the underlying risk of real estate debt as an asset class.
Further, the minimum investment requirement is of Rs 10 lakh. Therefore, investors should carefully consider their risk tolerance and investment goals before investing with Earnnest.me. As always, conducting thorough research and seeking professional financial advice is recommended when exploring alternative investment opportunities.
Please note that this is an opinion blog and not an official research or investment advice. This blog aims to help retail investors make an informed decision if they are interested in real estate debt as an asset class, and neither encourages nor discourages you from investing in any particular asset class or platform.
We plan to come up with more blogs discussing different types of instruments available in the world of startup investing, write on due diligence for some platforms, and also existing and upcoming alt investment deals in the Indian market. If you want to stay updated on the latest blogs, please subscribe to our newsletter so you get notified automatically.
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