The real estate sector in India is on upturn. In the last 24 months, there has been an unprecedented growth wherein the overall market has seen a 35 to 40% jump in capital values. Research estimates say that the real estate market in India is expected to grow from the current $14 billion to $102 billion in the next 10 years. The key catalysts for growth include increasing purchasing power with rising incomes, access to low cost loans, supply side constraints and a significant inflow of capital and investment into the sector both from domestic and international investors.
The industry is readying for a significant inflow of funds. Real estate funds have been launched by Kotak, HDFC, AnandRathi, ILF&S, ICICI Ventures amongst others. Typically, these funds own large properties, commercial office spaces, hotels etc, and earn rental income as well as gain from capital appreciation. They buy, develop and sell property and share profits with investors as in any other mutual fund scheme. Due to the local nature of real estate and complexity of transactions, it is not easy for investors to identify good investment opportunities on their own, in different cities and locations. Thus, these funds have the potential of being very popular with small investors as they make investments convenient and relatively risk free. The modifications of the FDI norms for the real estate sector in India coupled with opening up of the real estate funds would result in a paradigm shift with professional players, bigger projects and more transparency in the industry. The modified FDI norms for the real estate sector make it more construction-centric rather than land-centric. India’s booming real estate market is becoming a hot investment spot for cash-rich international pension funds, foundations, hedge funds, high net worth investors and foreign provident funds. Leading pension funds from the US such as CalPERS and Pension Fund of Oregon State, Tiger Management, Oxif and prominent insurance company AIG are among those investing huge sums in various real estate funds floated by corporates and fund managers — with the cumulative figure shooting over $4bn. The latest is IL&FS Investment Managers (IIM), which raised $405m last week, and is now raising another $200-300m. Sources said CalPERS and Oregon PF have invested $100m each in the IL&FS fund. Industry sources said that the US-based hedge fund Trikona is considering a $200m investment in the India’s real estate sector while club-registration-form NRI fund Maia wants to invest another $250m here. The Hindujas are planning a US$1 Billion realty fund. JP MOrgan is reported to be planning a Rs. 1,500 crore fund for real estate investment in India. Morgan Stanley has invested $68 million in Mantri Developers. It has been estimated that the real estate market will capture about 18-20% of the total FDI coming to India in 2005-06. The office sector market has also been growing rapidly at a compounded annual growth rate of over 30% during the last seven years across major cities in India and the demand for office space is estimated to have grown from over 3 million sq ft in 1998 to over 20 million sq ft in 2005. Due to the increased demand from IT and ITeS companies, rentals are firming up.”
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