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Investors line up for India's real estate


Investors line up for India's real estate

Last updated: March 30 2007
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  • Investors line up for India's real estate

    India's real-estate boom keeps getting bigger. In the past few weeks, private investments in the sector amounting to US$50 billion have been announced.

    This week, the country's biggest real-estate developer, DLF, inked a $20 billion deal with the largest privately held real-estate developer in the world, Al Nakheel of the United Arab Emirates, to build two townships in northern and western India.

    In another deal announced this week, the Hinduja Group, owned by the London-based Hinduja brothers, said the company planned to start a chain of hospitals in India with an investment of $1 billion in a tie-up with Dubai's government-owned Limitless LLC. Under the project, hospitals would be established in the major Indian cities of Delhi, Mumbai, Bangalore and Hyderabad.

    In January, Macquarie Bank, Australia's largest securities firm, announced that it would invest US$25 billion along with three partners to create an ultra-modern integrated township on 26,300 hectares in Andhra Pradesh.

    Last month, Tishman Speyer Properties LP, which owns New York's famous Rockefeller Center and Frankfurt's MesseTurm, said it, along with ICICI Bank and Nagarjuna Construction Co, will build a $2 billion residential and commercial township for 30,000 people, spread over 160 hectares near Hyderabad.

    Indeed, real estate has been a focus area for investors. There have been warnings about a speculative bubble and the need to set up a regulatory authority to ensure transparency.

    But observers have said that the investment is the result of real pent-up demand arising from runaway economic growth and rising incomes. It is expected that the creation of adequate commercial/residential space will rein in runaway prices, which are beyond the reach of many people.

    In what could be a fillip to massive real-estate opportunities, New Delhi is keen that proposed special economic zones (SEZs) remain on course despite massive farmer protests in Nandigram, West Bengal. As per government estimates, more than 250 SEZs proposed to be set up have a projected investment of $100 billion and employment potential for 2 million. Although all SEZ approvals have been put on hold after the Nandigram violence, New Delhi is widely expected to give the go-ahead. States such as Tamil Nadu, Gujarat, Andhra Pradesh, Karnataka and Haryana, where the land-acquisition process has been peaceful, have been pushing for SEZs.

    Hospitality is one red-hot area into which an estimated $2 billion is likely to be pumped over the next three years, the bulk of it through private-equity funds. Many funds are allocating as much as 50% of their planned real-estate investments into the sector, as hospitality remains highly under-serviced, with a huge demand-supply imbalance.

    The ICICI-Technopak study charted the future of mall development. It predicted that because of the sustained yield of about 18% in the retail real-estate sector, the next stage of sophisticated funding mechanisms might include real-estate investment trusts, real-estate mutual funds (REMFs), venture-capital funds and initial public offerings.

    Apart from DLF, other developers - including Omaxe Ltd, Puravankara Projects Ltd, Housing Development and Infrastructure Ltd, IVR Prime Urban Developers Ltd and Kolte Patil Developers Ltd - have also filed red-herring prospectuses with the regulator. However, poor performance of recent issues because of high interest rates and fluctuating stock markets have made retail investors wary.

    Another major source of funding is from the Middle East and Southeast Asia. Emaar Properties (Dubai), IJM Corp (Malaysia), Lee Kim Tah Holding (Singapore) and Salim Group (Indonesia) are looking to invest more than Rs50 billion.

    While Bangalore, Delhi and Chennai figure prominently in everybody's plans, new and cheaper locations are being charted in Andhra Pradesh, West Bengal, Tamil Nadu and Rajasthan.
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