The huge potential of the real estate sector is driving domestic real estate demand and valuations. This has resulted in many venture capital funds (VCFs) to embrace the real estate sector because of its vast potential. They have arrived in the real estate arena on a grand scale.

In calendar year 2006, the total investment by domestic and foreign venture capital funds registered with the Securities and Exchange Board of India (Sebi) has been pegged at nearly Rs 12,000 crore. Of this, the real estate sector has received a meaty share, overtaking IT and other sectors, which made up their investment portfolio earlier.

Investments by VCFs and foreign venture capital investors in 2006

Real estate sector: over Rs 4,000 crore
IT sector: Rs 2,000 crore
Services sector and industrial products: Rs 1,000 crore
Pharma sector: Rs 800 crore

The key factor contributing to the larger inflows in the real estate sector was the government’s decision to allow 100% FDI in February, 2006.
Also the demand generated by the growing salaried middle-class for residential and commercial complexes has fuelled a boom.

Earlier, the Indian real estate sector was closely guarded and with the liberalization of rules and policies, a lot of funds have been flowing in. Wherever there is a potential for huge return over a long-term horizon, VCFs and private equity investors have stepped up their activities.
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  • ASSOCHAM forsees real estate boom to continue in 2007

    According to ASSOCHAM, overseas real estate giants likely to bring in a collective capital of US$ 8 bn investments

    The real estate boom of 2006 is set to multiply itself in 2007 to get India a foreign capital of over Rs80bn with leading international investors establishing their presence in its richly rewarding real estate development, providing new employment opportunities for over 2 lakh skilled and unskilled workforce, according to estimates made by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
    According to ASSOCHAM, overseas real estate giants such as Royal Indian Raj International, Blackstone Group, Goldman Sachs, Emmar Properties, Pegasus Realty, Citigroup Property Investors, Lee Kim Tah Holdings, Salim group, Morgan Stanley and GE Commercial Finance are likely to bring in a collective capital of US$8bn investments to suitably reward them benefits with India’s opening up of its real estate sector to 100% FDIs.

    According to Chamber, emergence of IT and ITES sector and organized retail are the major growth drivers. Growth of IT and ITES created vast demand of office space and appearance of malls all over the country tendered huge scope for land development. Analysts peg the total demand for commercial office real estate in Bangalore, Chennai, Delhi-NCR, Mumbai, Pune, Hyderabad and Kolkata alone to be over 25 mn sq ft in 2006.

    Booming hospitality with the booming economy brought additional reasons to cheer for the Real Estate developers. Tier II cities such as Nagpur, Ahmedabad, Vadodara, Indore, Raipur, Jaipur, Agra, Siliguri and Kochi emerged as investment destinations in the current real estate scenario. The development of suburbs such as Navi Mumbai also generated immense opportunities.

    With stock market being highly volatile, investment in real estate has begun to look attractive and competitive with typical yields being 20-25 per cent per annum. Real estate will offer a good investment alternative to stocks and bonds over the coming years.
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