Date:24/07/2006 URL: http://www.thehindubusinessline.com/2006/07/24/stories/2006072402840100.htm

Back Foreign funds fuel domestic realty boom

Anil Sasi
Neha Kaushik

Estimated $10-12 b of investment pledged by foreign and domestic funds

Realty's the rage
Merrill Lynch sees sector growing to $90 b by 2015
US-based fund started by NRIs plans to plough in $1 b
Roadshow planned in US cities from August 26

New Delhi , July 23

The booming Indian property market could be in for a sustained bull run. Propelled by shortfall of around 20 million homes in the country, an estimated $10-12 billion of investment has been pledged by foreign and domestic funds over a year or two.

Global big names such as Morgan Stanley, Lehman Brothers, HSBC and ABN Amro are among those queuing up to pick up stake in local realty firms.

Analysts said that the private equity arms of JP Morgan, Lehman Brothers and Merrill Lynch are also on the lookout for deals while at least two dozen firms have already firmed up plans to invest in the realty sector.

These include the biggest US pension fund, CalPERS, hedge fund Farallon Capital Management, US-based developer Tishman Speyer and NRI fund Trikona Capital.

Domestic funds include Kotak Realty Fund, HDFC India Real Estate Fund, Pantaloon Retail's Kshitij Real Estate Fund and UTI Venture Fund.

High returns the draw

Commenting on the attractiveness of the sector, analysts put perceived internal rate of returns of close to 20 per cent or so for the sector as a big draw.

The recent SEBI guidelines allowing real estate mutual funds to invest directly in properties have also added to the surge.

Bullish forecasts by Merrill Lynch, which expects the Indian realty sector to grow almost nine times to $90 billion by 2015, has further spurred the growing interest, especially among the foreign players.

Deals, new funds

Recent deals in the realty sector include Morgan Stanley picking up stake in two local real estate firms within a space of a few months, while Lehman Brothers, ABN Amro and HSBC Investments together picked up about seven per cent in a Delhi-based developer.

In January this year Tishman Speyer's tied up with ICICI Bank to invest $1 billion in the country, while JP Morgan, Starwood Capital Group Global, and Knight Frank are among the list of foreign investors in the process of planning new funds.

The US-based Trikona Capital Group, started by two NRIs, has announced plans to plough in at least $1 billion through two funds launched in the US and UK.

Analysts forecast that the amount of money being raised for investment in the Indian realty sector could double over the next couple of years.

With the US funds clearly on the forefront, the Confederation of Real Estate Developers' Associations of India is now headed for the US with plans to organise a series of real estate exhibitions in American cities, including New Jersey, Chicago, and San Jose, from August 26 to September 4.

The deluge of capital inflows in the real estate sector has also sparked off concerns, including worries of a Hong Kong-type run seen during the Asian currency crisis.

The asset-price bubble has already prompted a caution by the RBI.