MUMBAI -
"Buy land - they are not making it anymore," Mark
Twain famously said, and foreign investors are
frantically rushing to follow his advice in India.
According to "Future of Real Estate
Investment in India", a study published by the
Associated Chambers of Commerce and Industry of
India (ASSOCHAM), the real-estate market will grow
to US$60 billion by 2010 from the present $16
billion. Foreign direct
investment (FDI) is expected
to provide $25 billion to $28 billion.
FDI's share of the Indian property market
will expand by at least 10% by March, says the
ASSOCHAM study, primarily because of global
real-estate players hugely interested in the
Indian market, with particular demand for office
space for the information-technology and
business-process-outsourcing sectors.
In
Mumbai, India's financial capital, companies are
renting office space in downtown areas near the
airport for upwards of $168,000 a month. The
cost-of-living implications for the local
population - who are already facing acute housing
and office space shortages - are profound. A local
newspaper reported on December 2 that an apartment
was sold for a record $4.2 million in the
well-known Maker Chambers in uptown Cuffe Parade.
Indian players are also moving into the
super-league, such as Delhi-based Unitech. Valued
at less than $20 million three years ago, it is
now worth an astounding $8.5 billion, an increase
of 69,000%.
Vikram Mehta, director of
business planning and strategy at Vaishnavi
Corporate Communication, the company handling
public relations for Unitech in India, confirmed
Unitech's amazing growth numbers and said the
industry bubble isn't going to burst in the near
future. No worries on that account, he told Asia
Times Online: "Look at every analytical report on
India and infrastructure is the only factor
separating India from other big-growth economies
such as China. There is room for much more
investment."
Others agree. "Unless there
is a dramatic change in market conditions, fund
flows into the real-estate sector from overseas
investors would continue for the next two to three
years," predicts Indian business website Domain-B.
An encouraging Macquarie Research report
last month said: "On a regional basis and from a
NAV [net asset value] perspective, India looks
reasonably attractive. As a group, the Singapore
developers are trading at an 18% premium to NAV
... the China developers are trading at just a
small discount of 4%. After the recent rally, the
Hong Kong developers are at par with NAV
(expensive on an historical basis)." (NAV is the
value of a single mutual-fund share calculated at
the end of every business day, and calculated as
the value of the underlying assets of the fund,
deducting its liabilities and divided by the
number of outstanding shares.)
Surprisingly, Macquarie Research also says
that there is much less office space in India than
in other Asian countries and cities. "Mumbai has
just 12 million square feet [about 1.1 million
square meters] of office space, compared [with] 70
million square feet [6.5 million square meters] in
Singapore."
The boom was fueled by the
Indian government's decision to allow 100% FDI in
the construction business from March 2005.
Earlier, only non-resident Indians and persons of
Indian origin were allowed to invest in the
housing and real-estate sectors. An online Indian
Real Estate Discussion Forum, claiming to be the
first of its kind to serve this excited market,
observes: "The presence of a large number of
Fortune 500 companies will attract more companies
to this country, thus creating more demand for
corporate space. Also, investment yields huge
dividends. Seventy percent of foreign investors in
real estate are making profits and another 12% are
breaking even."
George Soros, the world's
wealthiest speculator, is also heading for India
this month, and is scheduled to meet with Prime
Minister Manmohan Singh next Friday.
Significantly, real estate is among the top items
on his investment menu. His Quantum Fund has
already invested in Indian real-estate firms
indirectly through tax haven Mauritius.
Eddy Zuaiter, the Soros Fund's management
chief, was already in India to do the groundwork
for his boss's visit and met with top government
officials and corporate leaders. With more global
big names such as Citigroup, Starwood, Morgan
Stanley, Goldman Sachs, Merrill Lynch and Lehman
Brothers upping their ante in Indian real estate,
the market has overheated enough for banking
regulator Reserve Bank of India anxiously to
direct banks to put a cap on loans to real-estate
business.
The ASSOCHAM study says foreign
investors will also be interested in shopping
malls and the controversial "special economic
zones" that detractors say are being misused by
the government to sell prime land at throwaway
rates to big industrial houses.
The study
notes that FDI inflow in 2003-04 was $2.7 billion,
of which only 4.5% was in real estate. FDI
increased to $3.75 billion in 2004-05, with the
real-estate share being 10.6%. In 2006-07, FDI is
expected to be $8 billion, with the real-estate
share of the cake estimated to be about 26.5%.
Indian companies that were local players
earlier are now hunting internationally. After the
Unitech success, another leading construction
company, Hiranandani Construction, aims to gather
$750 million from the London Stock Exchange, the
biggest offering by an Indian developer.
Real-estate commentators are amazed by the
way prices have nearly doubled in the past three
years in major cities such as Mumbai, Delhi,
Bangalore and Chennai. The boom is also trickling
down to smaller cities, which are seeing growth of
more than 50%.
When Asia Times Online
asked Amit Arora of Arora Properties in the
northern state of Uttaranchal how one could invest
$4.5 million in real estate in his state, Arora
favored the Mark Twain school of thought, advising
investors to buy land, sit on it for a year or two
and sell it.
"Break up the investment into
more properties [rather] than invest more in a
single property," said Arora. "We have been in
this business since 1952, after coming to India
from Pakistan after the partition [of India], and
in the last two or three years, we have not heard
anyone say they have lost money in real estate."
Even Himalayan cities such as Dehradun,
Mussourie and Shimla are seeing a corporate
real-estate rush, with major companies such as
auto makers Mahendra and Mahendra now developing
resorts and vacation homes - the next big area of
growth for a country raking in more disposable
spending money.
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