News: Pvt equity bemoans price of Indian developers
(RTR 29/06/2006) Singapore - Private equity funds looking for deals in an Indian property boom are complaining that developers are sticking huge price tags on themselves to take advantage of billions of dollars of promised investment.
Since India eased rules on foreign finance of construction early last year, several funds, especially from the United States, have been trying to invest in projects and companies.
Nipun Sahni, India country head for the property arm of GE Commercial Finance, a unit of US conglomerate General Electric Co, said $10-12 billion had been committed by domestic and international property investors.
But even though the economy is growing at over 8 per cent annually and property prices in parts of Mumbai have jumped 60 per cent in a year, Sahni said developers were asking too much.
"There's a valuation mismatch," Sahni told a conference in Singapore this week. "How much future growth can you price in today? Every Indian company can be worth billions of dollars."
In recent months a few deals have been sealed.
US investment bank Morgan Stanley invested $68 million for a stake in Mantri Developers Private Ltd., compatriot developer Tishman Speyer tied up with India's ICICI Bank to pour $1 billion into the country and US pension fund CalPERS has put $100 million in an Indian property fund.
Private equity arms of JPMorgan , Lehman Brothers and Merrill Lynch are waiting in the wings.
Kurt Roeloffs, Asia chief executive of RREEF, the property asset management arm of Deutsche Bank , blamed high valuations on India's rigid procedures and rules for foreign direct investment.
The market was skewed because many foreign funds had instead applied for approval for venture capital status, which is more flexible because it lets investors divest within three years.
"Now the window's too narrow and it's forcing a huge amount of money on certain developers, certain regions and creating imbalances," Roeloffs said.
"A NEW COUNTRY"
The rush for property is reflected on India's stock market, where high valuations are especially pronounced because so few developers are listed. New Delhi property firm Unitech Ltd, for example, trades at 477 times earnings.
GE Commercial Finance signed a deal last year to invest $63 million in a fund that invests in business parks with Singapore's Ascendas PTE Ltd Sahni said the firm now wanted to partner developers in fast growing Bangalore and Hyderabad.
"I have a hunch real estate will have bumps and cracks in micro markets, but you're literally creating a new country. After the Moguls and the Britishers there's been no building," he said. "You have to create places for people to work, live and shop."
India's property industry is hampered by poor foreclosure laws, tedious property registration processes, tax and transaction laws that vary by state, and frequent contests over property ownership. But investors are excited about internal rates of return of 25 percent.
Roeloffs said RREEF would team up with "second tier", but not completely inexperienced, developers to build townships.
He said overbuilding of shopping centres -- around 500 are being built in a country that had only 45 a couple of years ago -- and the poor quality of many of them, would give private equity funds restructuring work.
"There are too many undifferentiated malls, in Gurgaon there are 17 malls in a row, all the same," he said.
"It's going to be a good opportunity for people doing it right and for people who pick up the problems later.
Since India eased rules on foreign finance of construction early last year, several funds, especially from the United States, have been trying to invest in projects and companies.
Nipun Sahni, India country head for the property arm of GE Commercial Finance, a unit of US conglomerate General Electric Co, said $10-12 billion had been committed by domestic and international property investors.
But even though the economy is growing at over 8 per cent annually and property prices in parts of Mumbai have jumped 60 per cent in a year, Sahni said developers were asking too much.
"There's a valuation mismatch," Sahni told a conference in Singapore this week. "How much future growth can you price in today? Every Indian company can be worth billions of dollars."
In recent months a few deals have been sealed.
US investment bank Morgan Stanley invested $68 million for a stake in Mantri Developers Private Ltd., compatriot developer Tishman Speyer tied up with India's ICICI Bank to pour $1 billion into the country and US pension fund CalPERS has put $100 million in an Indian property fund.
Private equity arms of JPMorgan , Lehman Brothers and Merrill Lynch are waiting in the wings.
Kurt Roeloffs, Asia chief executive of RREEF, the property asset management arm of Deutsche Bank , blamed high valuations on India's rigid procedures and rules for foreign direct investment.
The market was skewed because many foreign funds had instead applied for approval for venture capital status, which is more flexible because it lets investors divest within three years.
"Now the window's too narrow and it's forcing a huge amount of money on certain developers, certain regions and creating imbalances," Roeloffs said.
"A NEW COUNTRY"
The rush for property is reflected on India's stock market, where high valuations are especially pronounced because so few developers are listed. New Delhi property firm Unitech Ltd, for example, trades at 477 times earnings.
GE Commercial Finance signed a deal last year to invest $63 million in a fund that invests in business parks with Singapore's Ascendas PTE Ltd Sahni said the firm now wanted to partner developers in fast growing Bangalore and Hyderabad.
"I have a hunch real estate will have bumps and cracks in micro markets, but you're literally creating a new country. After the Moguls and the Britishers there's been no building," he said. "You have to create places for people to work, live and shop."
India's property industry is hampered by poor foreclosure laws, tedious property registration processes, tax and transaction laws that vary by state, and frequent contests over property ownership. But investors are excited about internal rates of return of 25 percent.
Roeloffs said RREEF would team up with "second tier", but not completely inexperienced, developers to build townships.
He said overbuilding of shopping centres -- around 500 are being built in a country that had only 45 a couple of years ago -- and the poor quality of many of them, would give private equity funds restructuring work.
"There are too many undifferentiated malls, in Gurgaon there are 17 malls in a row, all the same," he said.
"It's going to be a good opportunity for people doing it right and for people who pick up the problems later.
posted by InCar Group Press Room at 16:51
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