Investors line up for India's real
estate By Siddharth Srivastava
NEW DELHI - 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.
"We have signed a 50:50 joint venture with
Al Nakheel to develop
integrated townships with an
investment of $20 billion," a DLF executive said
on the sidelines of a conference of UAE and Indian
officials, business and political leaders in New
Delhi.
The companies will initially invest
$5 billion each in the next three years to develop
about 16,000 hectares, most probably in the states
of Haryana (Gurgaon) and Maharashtra (between Pune
and Mumbai).
The townships, scheduled to
be completed in 2013, with more than 70% of the
land already acquired, will feature an integrated
combination of residential, retail and commercial
properties.
DLF has already applied to
statutory regulators for the second time to launch
a public float that could raise about $2 billion
for a 10.2% stake. Joint-venture partners include
Hilton Hotels, Feedback Ventures and the UK-based
infrastructure company Laing O'Rourke.
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, just 170 kilometers
from software hub Bangalore.
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.
Currently growing at 30% per
annum, the Indian real-estate market is estimated
to be worth more than $15 billion. A recent study
has shown that domestic and overseas investors and
private-equity funds are looking to pump a
whopping Rs320 billion ($7.36 billion) into
India's real-estate sector.
"The
transparency in real estate has contributed to the
increase in interest by domestic and financial
institutions, resulting in greater availability of
financing for real-estate developers," an ICICI
Property Services-Technopak paper said.
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. Recently, Prime Minister Manmohan Singh
said government was moving slowly because of
"inadequacies", but made it clear that the
decision was "irreversible".
This week he
said: "There are issues pertaining to land
alienation and displacement of people, and these
must be addressed.
"We will address them
to the satisfaction of all. I do not see any
reason why there should be a conflict between
industry and society. The development of modern
industry should be a societal goal."
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.
Last year, India's largest
private-sector entity, Reliance Industries Ltd,
and the Haryana government signed an agreement for
setting up India's single largest multi-product
SEZ, involving an investment of nearly $9 billion.
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.
This year's
budget has provided a further fillip through the
tax holiday announced by Finance Minister P
Chidambaram in advance of the Commonwealth Games
in Delhi. This week, the Haryana Urban Development
Authority sold a 2-hectare plot for a five-star
hotel in Sector 47, Gurgaon, for a humongous Rs2.5
billion ($57.5 million).
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.
The paper concluded that REMFs would
institutionalize investments and provide a major
source of capital for the industry. At the same
time, a mix of retail investors and institutional
investors would be good alternative solutions.
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, the study said.
According to
Peter Penhall, chief executive officer of
Gowealthy.com, one of the Middle East's well-known
real-estate and online property-brokerage portals,
India will see an international shift in the
real-estate sector due to the ongoing
information-technology boom.
Siddharth Srivastava is a New
Delhi-based journalist.
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2007 Asia Times Online Ltd. All rights reserved.
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