News: High demand heats up India real estate
(NYT 16/05/2006) Bangalore - Forged land titles, the possibility of corruption, high taxes? No matter. India's real estate market is getting very, very warm.
It may still be a fragmented industry with high transaction costs and an absence of openness, but it is whetting the appetites of domestic and overseas investors. In India, changing government policies and a focus on infrastructure are driving up the demand for housing developments, malls and offices.
"For investors seeking the high returns that are no longer possible in the mature European and North American real estate markets, India and China are hot," said Prakash Gurbaxani, the chief executive of TSI Ventures in Bangalore. "Every foreign investor group, including pension funds, high-net-worth individuals and private equity funds, are all looking at this sector."
TSI, a joint venture of Tishman Speyer Properties of New York and ICICI Bank, which is based in Mumbai, plans to invest more than $1 billion in the industry in the next few years.
In the past, investors were wary of the opaque business practices in Indian real estate. The land laws were archaic, mortgage financing was expensive, and the quality of the developments was poor.
But these days, India's real estate market, valued at $12 billion, is expanding at an annual rate of 30 percent. Analysts at Merrill Lynch predict that the market will grow to $90 billion in 10 years.
Foreign and domestic investors are eagerly scouring this market, but only recently has real estate begun attracting meaningful amounts of capital, said Rajesh Khanna, managing director in India of the private equity firm Warburg Pincus. In the past year, Warburg Pincus has dedicated a third of its resources in India toward creating and evaluating real estate investment opportunities.
Next month, the real estate developer DLF Universal plans to hold a public offering that is expected to raise more than $3 billion in what is billed as India's biggest share sale. It would top public offerings like the government's $2.3 billion share sale of Oil & Natural Gas two years ago.
Kushal Pal Singh, the chairman of DLF and one of India's richest men, is credited with turning a sleepy New Delhi suburb into a bustling zone of fancy malls and offices. DLF has projects in 18 cities and plans to expand to 36.
Last year, India's government eased restrictions on foreign ownership of real estate, construction and housing companies. Foreign developers can have wholly owned subsidiaries in India if they invest $10 million. Foreign companies can build commercial and residential buildings if the projects exceed 50,000 square meters, or 538,000 square feet.
Last month, the California Public Employees' Retirement System invested $100 million in a real estate fund floated by IL&FS Investment Managers of India. In March, Morgan Stanley's real estate investment arm said it would pay $68 million for a minority stake in an Indian property firm, Mantri Developers.
Warburg Pincus, too, is negotiating for several real estate investment opportunities, including technology office parks.
"We see ourselves investing a few hundred million dollars in real estate in India over the next couple of years," said Khanna, the India managing director.
More than a third of India's population of more than a billion people is under 25 years old. Such a young populace, coupled with low mortgage rates, is making the housing sector buoyant.
At the same time, the outsourcing industry, which is growing more than 30 percent a year, has helped transform the commercial real estate industry. According to Merrill Lynch, outsourcing will create 200,000 jobs a year and demand for more than 15 million square feet of commercial space every year.
It may still be a fragmented industry with high transaction costs and an absence of openness, but it is whetting the appetites of domestic and overseas investors. In India, changing government policies and a focus on infrastructure are driving up the demand for housing developments, malls and offices.
"For investors seeking the high returns that are no longer possible in the mature European and North American real estate markets, India and China are hot," said Prakash Gurbaxani, the chief executive of TSI Ventures in Bangalore. "Every foreign investor group, including pension funds, high-net-worth individuals and private equity funds, are all looking at this sector."
TSI, a joint venture of Tishman Speyer Properties of New York and ICICI Bank, which is based in Mumbai, plans to invest more than $1 billion in the industry in the next few years.
In the past, investors were wary of the opaque business practices in Indian real estate. The land laws were archaic, mortgage financing was expensive, and the quality of the developments was poor.
But these days, India's real estate market, valued at $12 billion, is expanding at an annual rate of 30 percent. Analysts at Merrill Lynch predict that the market will grow to $90 billion in 10 years.
Foreign and domestic investors are eagerly scouring this market, but only recently has real estate begun attracting meaningful amounts of capital, said Rajesh Khanna, managing director in India of the private equity firm Warburg Pincus. In the past year, Warburg Pincus has dedicated a third of its resources in India toward creating and evaluating real estate investment opportunities.
Next month, the real estate developer DLF Universal plans to hold a public offering that is expected to raise more than $3 billion in what is billed as India's biggest share sale. It would top public offerings like the government's $2.3 billion share sale of Oil & Natural Gas two years ago.
Kushal Pal Singh, the chairman of DLF and one of India's richest men, is credited with turning a sleepy New Delhi suburb into a bustling zone of fancy malls and offices. DLF has projects in 18 cities and plans to expand to 36.
Last year, India's government eased restrictions on foreign ownership of real estate, construction and housing companies. Foreign developers can have wholly owned subsidiaries in India if they invest $10 million. Foreign companies can build commercial and residential buildings if the projects exceed 50,000 square meters, or 538,000 square feet.
Last month, the California Public Employees' Retirement System invested $100 million in a real estate fund floated by IL&FS Investment Managers of India. In March, Morgan Stanley's real estate investment arm said it would pay $68 million for a minority stake in an Indian property firm, Mantri Developers.
Warburg Pincus, too, is negotiating for several real estate investment opportunities, including technology office parks.
"We see ourselves investing a few hundred million dollars in real estate in India over the next couple of years," said Khanna, the India managing director.
More than a third of India's population of more than a billion people is under 25 years old. Such a young populace, coupled with low mortgage rates, is making the housing sector buoyant.
At the same time, the outsourcing industry, which is growing more than 30 percent a year, has helped transform the commercial real estate industry. According to Merrill Lynch, outsourcing will create 200,000 jobs a year and demand for more than 15 million square feet of commercial space every year.
posted by InCar Group Press Room at 13:59
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