Fund attack on Indian Real Estate
By Sharad Matade
Over the past decade, India has emerged as a leader in the global economy. India has succeeded to attract foreign investors. Many foreign investors are expanding their wings in India. Global giants like ELI Lilly, General Electric, and Howlett Packard have set up their research and development facilities in India.
Real estate is one of the fastest growing industry India. The industry has an appropriate linkage with other industry. Around 250 industries are working with this industry.
The government has permitted 100 per cent foreign investment in the construction sector for a three years period. The government has also reduced the minimum size, based on feedback from prospective investors. These positive steps have opened the door for foreign investors to make strong Indian economy . Real estate industry always play a vital role to grow economy of any country . Singapore and Hong Kong are cites of the countries, in which real estate played major role to construct their economy. For example, it accounts for about 8 per cent of UK’s GDP , 16 per cent of Ireland’s and 11 per cent of Dubai’s. The real estate was prime operator of the notable 16 per cent growth in Dubai’s GDP in 2004.
In India, real estate contributes 6 per cent to GDP, which is not so bad but not good enough. The industry has also make major part to set up basic infrastructure.
Foreign investors are more interested to invest in commercial than residential projects. Because commercial projects are easier to sell to institutional buyers than individual buyers. FDI would be about $ 8 billion , of which the share of the sector is estimated at 26.5 per cent against 16 per cent in 2006. according to recent survey, Indian real estate market will grow more than three times to reach $ 60 billion, of which foreign investors will contribute around $ 25- 28 billion. The government has lucrative policies for foreign investors. Major foreign investors like Indian Raj, Goldman, Sach’s Blackstone and Emmar Properties have announced plan to invest in India. FDI would provides employment for over 2 lakh youth.
The demand for office space have grown for around 19 million sq ft 2006-07 from four million sq ft in 1999-2000. by 2010, IT and Business process outsourcing sectors will demand for 200 million sq ft in major metros. According to findings, the biggest US Penssion Funds, CalPERS, hedge fund Fasallon Capital Management , US based developer Tishman Speyer and NRI fund Trikona Capital too have drawn plans to invests in the real estate. Domestic players like HDFC , Kotak Realty Fund, India Real Estate Fund, India Real Estate Fund and UTI venture Fund were also very active. Even around 25 million Non Residential Indian (NRIs) , living across 125 countries are investing in major cities and hill station. They are investing in residential properties than commercial properties.
In India, major developers like DLF, Parasvnath Developers Limited , Omeax have came up with Initial public offers. Even Global big name such as Morgan Stanely, Lehman Brothers, HSBC and ABN Amro are ready to pick up stake in local realty firms. And they have also been acclaimed with cheer.
The government has allowed 100 per cent foreign investments in construction projects with fast -track approvals. But real butter for foreign investors of potential returns of 25 per cent and more in Indian projects that might be hard to come by in the US and western Europe today. According to industry sources, around 100 foreign investors have stepped in Indian investment market.
The raising the funds include Wall street powerhouse such as the Blackstone Group ( US$ 1 billion), Gold Man Sach’s (US$ 1 billion), Citi Group Property Investors (US$ 125 million), Morgan Stanley (US$ 70 million) and GE commercial Finance Real Estate (US$ 63 million).
Funds and investments in Indian Real Estate will do nothing good to the direct property purchasers. These will fuel in further enhancement of property price in the country. The norms of FDI slapped to FII and other Hedge Funds was a right move by the Indian government which makes these funds committed for at least 3 to 5 years. What happened in Korea and what is going on in US with Sub-prime rate is the prof that we must take these funds and their expectations very seriously.
Major projects cleared by FIPB
Dubai based Emmar USD 500.0 million
CESMA Intt Pvt Ltd with AP Govt- township project at Hyderabad and Vijaywada
Jakarta based Salin group USD 100.0 million project at Kolkata.
Lee Kim Tah holdings , Singapore USD 155.0 million project at Chennai.
IJM’s USD 350.0 Mn project at Mohali, Chandigarh.
Keppel Land , Singapore ‘s USD 13.0 million land acquisition at Bangalore for condominium project in JV with Purvankara
Capital Land’s investment with Runwal Group , Mumbai
Morgan Stanley’s USD 70 million in Mantri , Bangalore.