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India well positioned for surge in real estate


India well positioned for surge in real estate

Last updated: March 13 2007
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  • India well positioned for surge in real estate

    Real estate investment trusts don’t exist in India, but investing in real estate there shows great potential, according to executives at Deloitte Touche Tohmatsu.

    REIT’ in India stands for ‘real estate investment tourists’. Even though REITs have not yet been established in India in the way they have in the United States.

    As a result, the Securities and Exchange Board of India is nearing regulatory clearance for something like a REIT, called a real estate mutual fund, that was proposed in June 2006. Real estate funds would fall under India’s mutual fund regulation, be listed on the stock exchanges and have to report net asset values daily.

    Real estate funds would provide foreigners the opportunity to invest directly in properties and mortgage-backed securities, as well as the equity shares, bonds and debentures of companies that developed property in the country.

    Developers such as Gayatri Projects Ltd., Tantia Constructions Ltd. and Parsvanath Developers Ltd. have received positive responses to their initial public offerings. Additionally, public-sector undertaking banks have doubled their real estate lending over the past few years. Lending shot up 102% to $35 billion in 2005 and 2006, from $17.57 billion in 2004 and 2005.

    Growth is expected in residential, retail and office sectors due to the country’s growing population, rising incomes and the shift to nuclear families from extended families. In fact, the National Council for Applied Economic Research in New Delhi estimated that the total number of households in India will increase to 221.9 million in 2010, from 204.3 million units in 2006.

    Another good sign for investors is the recent repeal of the Urban Land Ceiling Act, which limited the amount of land that individual entities could hold, opening the market to larger acquisitions.

    Bangalore and Hyderabad, cities where much of the technology industry is based, are areas with the greatest demand for office space. They are considered Tier 2 cities, along with Gurgaon and Pune. They are attractive investments, because Tier 1 cities such as New Delhi, Mumbai and Chennai are expensive, suffer from rising interest rates and a congestion problem.

    Real estate was not really an asset class in India until this last year. Now everybody’s looking at it as an asset class.
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