$6 billion of FDI in the pipeline for Indian real estate market

By Vipin Agnihotri

In the recent report of Jones Lang LaSalle Meghraj, for the year 2007, foreign direct investment worth about $ 30 billion is in the pipeline for all Asian real estate markets. Of this, $ 6 billion is planned for the Indian market alone.

According to experts, Foreign Direct Investment has been increasing in India over the past several years. In terms of statistic, during the 1990s, annual FDI inflow was $2-3 billion a year. On the other hand, in 2004-05, it touched $ 5.6 billion and in 2005-06 it touched a peak of $7.2 billion.

It has come into the notice of The India Street that JLL may be underestimating and that $10 billion of foreign investment will enter the Indian real estate sector over the next year or so. As a matter of fact, the share of real estate in FDI is expected to be 26 percent this year, up from 16 percent in 2006.

Listed and unlisted real estate companies and private institutional funds are the key players making FDI investments in India. It is worth mentioning in this regard that more than a dozen overseas private equity firms such as Goldman Sachs, Morgan Stanley, JP Morgan and Blackstone Group are looking at investment opportunities or have already invested in the Indian real estate market.

In my opinion, investors are attracted to the strong commercial property yields across metros, the high capital and rental value appreciation and the availability of quality supply in the country. The pivotal factor here is that with real estate yields in mature economies narrowing, India’s current commercial property yield of 10-11 percent is viewed as attractive. Apart from that, rental rates for grade A commercial properties in Tier-I cities of Mumbai and Delhi have appreciated by more than 100 percent in the last 15-18 months.

Initial signs are that the growth of the real estate sector will continue with strong IT-ITES, banking, financial services and insurance and corporate demand driving the office sector. No one will argue with the fact that investors have now developed confidence in the India growth story.

Theoretically speaking, the average growth in India’s real GDP over the last six years has been 7.1 percent. According to government figures, India’s GDP is expected to grow at 9.2 percent. This is expected to translate into big demand for all segments of real estate.

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Foreign funds bet on real estate

New Delhi, India: With more than 35 big-ticket foreign funds having alreadychecked into the real estate sector India, global realtors, banks and bondhouses from New York to Jerusalem are suddenly finding the opportunity toinvest in India irresistible. If the year 2006 marked some of the country's biggest land deals, the future bets on India realty are set to usher in a gold rush. A study by the India Brand Equity Foundation (IBEF) suggests that the first half of 2007 will see at least 20 more funds making an entry into India. This translates into $10 billion of foreign direct investment in realty. In fact, the study indicates that India would be merely scratching the surface of the potential infrastructure opportunity with $191.51 billion of investments committed over the next five years. The sector is estimated to grow at a CAGR of 15% over the next few years. Merrill Lynch forecasts that the Indian realty sector will grow from $12 billion in 2005 to $90 billion by 2015. Prominent global funds including Carlyle, Blackstone, Morgan Stanley, Trikona and Warbus Pincus are sitting on a total corpus of $12-15 billion, say experts. Eminent global real estate business houses like the Philippines-based Ayala, and Signature group, Och-Ziff Capital, EurIndia and Old Lane from Dubai are keen on sizeable investments into India . While FDI from the UK is also likely to pick up in the next few months, investors in the US, Israel, Malaysia and Singapore want to be a part of the India story. Australian real estate consultancy major LJ Hooker, with 700 odd franchises in South East Asia, has opened its India account with a franchisee in Bangalore. US-based global investment bank Goldman Sachs and Unitech, the largest listed real estate company in India, will set up a special purpose vehicle (SPV) with a corpus of $208.7 million for investments in the real estate sector. DLF Ltd has forged a 50:50 joint venture with Nakheel, the largest property developer of the UAE, for two integrated townships in India at a whopping investment of $10 billion. The Tel Aviv-based $650 million real estate major, Alony Hetz is planning to invest $100 million in various residential projects in the country, mostly in Tier-II and Tier-III cities. Zurich-headquartered Credit Suisse, the world's leading financial house, is finalising on a $1 billion fund to invest in India's real estate sector. Dawnay Day International, the $10 billion UK-based investment company, plans to invest $1.5 billion in Indian real estate in the next two years. Chennai recently witnessed two big-ticket property deals. AIG Real Estate Fund and RMZ Corporation purchased an 11-acre plot at Guindy for $686.9 million and Shyam Kothari, in another deal, bought IDBI's 2.5 acres Boat Club property in Chennai for $40.3 million. Experts believe the sector couldeasily see at least $400-500 million of fresh FDI in the next 3-4 years, a sizeable chunk of which would primarily flow into residential and commercial projects. Source: The Financial Express