India’s real estate market is getting very, very warm.
It still may be a fragmented industry with high transaction costs and an absence of
transparency, 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, a joint venture
of Tishman Speyer Properties of New York and ICICI Bank, based in Mumbai.
“Every foreign investor group, including pension funds, high-net-worth individuals
and private equity funds, are all looking at this sector,” said Gurbaxani, whose
company has planned 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 $12 billion real estate market is expanding at a 30 percent
annual rate. Analysts at Merrill Lynch predict that the real estate 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 will have a public offering that
is expected to raise more than $3 billion in what is billed as India’s biggest share
sale. It tops earlier public offerings such as the $2.3 billion share sale of the
government’s Oil and Natural Gas Corp. 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 but 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
about 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.
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