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Property Investments in India

The real estate sector in India is attracting huge investments. Private equity players are considering big investments, banks are giving loans to builders, and financial institutions are floating real estate funds.

With 100% FDI in real estate now being allowed, overseas developers are also closely looking at the market.

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 found to show interest. A few funds belonging to Warren Buffet's Berkshire Hathway are also interested.

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.

Most of these funds have been meeting investment bankers, banks and housing finance companies in India to get a feel of the market. 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.

The developers are expected 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%. The IT and Outsourcing boom in the country has raised the need for quality commercial, residential, hospitality and health care facilities as well

It is expected that the developers will 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.

HDFC, in association with SBI, has been 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 while ICICI Venture is in the process of raising Rs. 750 crore real estate fund.

In the health care segment, Singapore-based Parkways Hospitals has shown interest. Gleneagles - a part of Parkway Hospitals - has a stake in the Apollo Gleneagles Hospital.

According to the new FDI policy, up to 100% investment 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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