Foreign funds, companies troop in for India's
realty pie
TIMES NEWS NETWORK[ MONDAY, APRIL 11, 2005 12:10:45 AM]
MUMBAI: As equities falter, the action’s hotting up in the real estate
market. Private equity players are considering big investments, banks
are giving loans to builders, and financial institutions are floating
real estate funds. There seem to be few takers for the belief that the
real estate market in Mumbai, Bangalore and a few other cities could
well be a bubble.
With 100% FDI in real estate now being allowed, overseas developers are
also closely looking at the market.
According to financial circles, international investors like the
US-based Warburg Pincus, Blackstone Group, Broadstreet, Morgan Stanley
Real Estate Fund (MSREF), Columbia Endowment Fund, California Public
Employees’ Retirement System (CalPERS), Hines, Tishman Speyer, Sam
Zell’s Equity International, JP Morgan Partners and Amaranth Advisors
have been making enquiries. A few funds belonging to Warren Buffet’s
Berkshire Hathway are also interested.
Several Indian banks are stepping up their exposure to real estate
(considered a sensitive sector). In several cases, the use of rental
flow to service loans underlies the agreement between banks and
builders. RBI figures show that loans to builders, along with retail
credit (like home loans, credit cards and personal loans) constitute a
chunk of banks’ total loan portfolio.
Indian institutions like HDFC, ICICI Venture and Kotak Mahindra are
launching funds to invest in real estate. HDFC, in association with SBI
and ICICI Venture, has already launched a real estate fund, while ICICI
Venture is also tying up with Tishman Speyer, one of the leading
owner-developer-operator of upmarket properties in the world.
Hotel majors like Starwood Group of the US and Accor of France are also
fishing for opportunities.
Most of these funds have been meeting investment bankers, banks and
housing finance companies to get a feel of the market, bankers
confirmed. The developers are looking to tie up with Indian companies,
while the private equity funds seek to test the market with small
investments in big projects.
“India, being one of the highest growth areas in Asia, has been an
important investment destination for Warburg Pincus. Warburg Pincus
continues to adopt a diversified industry approach and will identify
potential investment opportunities as they arise,” said a Warburg Pincus
official.
In the initial phase, the developers expect to bring in at least $100m.
The pure private equity players are expected to be passive players. They
are likely to take a smaller stake in specific projects along with an
Indian real estate developer. These investors would prefer board berths.
The combined investments by various groups into Indian real estate
market could go up to $1.5bn. Funds are looking at returns of around
16-20%. “On the back of the IT and the outsourcing boom which is
happening in the country, there is a need for quality commercial,
residential, hospitality and also for even healthcare needs,” said a
senior investment banker.
Mortgages as a percentage of GDP is 2% in India, against 9% in Thailand,
13% in Korea, 23% in Malaysia, 51% in the US, 54% in the UK and 79% in
Denmark.
Bankers point out that the developers are likely to bring in 10% of
their own money, and raise the remaining money overseas or in India. A
group of NRIs has raised $150m under the Indian Real Estate
Opportunities Fund and are scouting for projects in India.
Hines — one of the largest privately held real estate development,
investment, and management companies in the world — is in advanced talks
to pick up a 51% stake in the $1.1bn Mumbai Integrated Special Economic
Zone (MiSEZ).
HDFC, in association with SBI, is in the process of raising Rs 750 crore
with a greenshoe option of Rs 250 crore for a real estate fund. It is
likely to invest in residential, commercial, and in IT properties. Kotak
is also raising a real estate fund, which will be headed by S Srinivasan,
co-head of investment bank Kotak Mahindra Capital. ICICI Venture is in
the process of raising a Rs 750 crore real estate fund.
Starwood is looking at service apartments in India. Senior officials
have been in India for the past week. French group Accor has already
tied up with InterGlobe, and is also looking at major opportunities in
India.
In the health care segment, Singapore-based Parkways Hospitals is
snooping around for opportunities. Gleneagles — a part of Parkway
Hospitals — has a stake in the Apollo Gleneagles Hospital.
According to the new FDI policy, up to 100% will be allowed under
automatic route in townships, housing, built-up infrastructure and
construction-development projects.
Construction projects would include hotels, resorts, hospitals,
educational institutions, housing and commercial premises. The
government has also reduced the minimum mandatory area to allow FDI in
real estate sector from 100 acres to 25 acres.
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