A story about storeys

Indian realty has emerged as a global destination for several top construction companies, architectural firms and allied industries.

An economy on overdrive, a rapidly growing population, burgeoning urbanisation and land that simply can't increase in size is a sure fire recipe for a realty boom. This is just what is happening in India. After the manufacturing and services sectors, realty and construction are the new areas of growth.

According to a Klynveld Peat Marwick Goerdeler (KPMG) survey, the real estate sector is expected to grow at a compound annual growth rate (CAGR) of 33 per cent, from $12 billion (about Dh44.136 billion) in 2005 to $50 billion (about Dh183.9 billion) by 2010.

With the foreign direct investment (FDI) policy in the real estate sector liberalised, several foreign developers have been able to enter India, tie up with local players and further buoy the charged market.

Global real estate giants are giving India a close look. Three of the largest real estate developers in the Middle East — Emaar Properties, Al Rostamani Enterprises' KM Properties, Al Ghurair Group's ETA Star and realty investment major Kingdom Hotel Investments — are investing in hotels, malls, healthcare, housing, IT parks and integrated townships across the country.

Middle East developers

Emaar has already inaugurated Novotel Hotel in Hyderabad. It also plans to bring Armani to India through a truly exclusive hotel chain that will boast only 10 such establishments in the world.

Additionally, Emaar proposes to set up hospitals, clinics and medical centres in South and East Asia in a bid to eat into the estimated regional market of $10 billion (about Dh36.78 billion).

KM Properties has set up a $2.3 billion (about Dh8.46 billion) real estate development fund for hotel development across Middle East and Asia and is looking at investing more than $500 million (about Dh1.83 billion) in India.

ETA Star is looking at investment opportunities in Indian hotels apart from IT parks, residential and commercial projects. It has already set aside $100 million (about Dh367.8 million) to be invested over the next five years. Kingdom Hotel Investments has also earmarked $1 billion (about Dh3.678 billion) for India.

Evidently, the money is simply pouring in.

The growing potential in real estate development has attracted the US-based investment bank Morgan Stanley, which has invested $68 million (about Dh250 million) in Mantri Developers, a midsized construction firm in Bangalore, and Merrill Lynch, which has invested $50 million (about Dh183.9 million) in Panchsheel Developers, a regional builder.

Morgan Stanley plans to invest more than $1 billion (about Dh3.678 billion) over the next four to five years.

Foreign investment

Overseas companies have also poured money into funds that invest in Indian developers. GE Commercial Finance Real Estate has invested $63 million (about Dh231.7 million) in an $800-million (about Dh2.94 billion) fund that is building IT parks. Calpers and the Oregon Public Retirement Fund have invested $100 million (about Dh367.8 million) each in the IL&FS India Realty fund.

Real estate funds set up to invest only in India have already raised more than $2.7 billion (about Dh9.93 billion). J.P.Morgan, Britain's Knight Frank and others are planning to invest as much as $4 billion (about Dh14.7 billion).

Warburg Pincus, the largest private equity investor in India, and Deutsche Asset Management, the largest active managers of real estate funds in the world, are all watching Indian realty with intent.

GIC Real Estate, an arm of the Singapore government, is also planning to invest several hundred million dollars in Indian real estate over the next two years.

Joint ventures

According to an estimate by the Associated Chambers of Commerce and Industry of India (Assocham), overseas real estate giants such as Royal Indian Raj International, Blackstone Group, Goldman Sachs, Pegasus Realty, Citigroup Property Investors, Lee Kim Tah Holdings, Salim Group and GE Commercial Finance are likely to bring in a capital of $8 billion (about Dh29.424 billion).

It also points out that Tishman Speyer of the US has tied up with ICICI Bank to invest $1 billion (about Dh3.678 billion), while Kotak India Real Estate Fund is raising $100 million (about Dh367.8 million).

An estimated 25 million non-resident Indians (NRIs) living in 125 countries are also investing in immovable property in India. The chamber forecasts that investment in real estate will go up from $12 billion (about Dh44.13 billion) in 2005 to $90 billion (about Dh331.02 billion) by 2015.

Encouraged by the Indian government's commitment to infrastructure development, global giant General Electric (GE) recently announced its plans to set up a $300 million to $500 million (about Dh1.1 billion to Dh1.839 billion) infrastructure fund for the real estate sector.

GE's statement came after Citigroup, Blackstone, IDFC and IIFCL announced their respective plans to set up $5 billion (about Dh18.39 billion) fund for infrastructure development.

Reports also suggests that GE is looking at financing real estate and is planning a $2 billion (about Dh7.356 billion) fund to be invested across all types of real estate which includes residential, retail, townships and special economic zones (SEZs).

Urban infrastructure

The Hinduja Group plans to develop 4,000 acres of land held by its listed units for residential and commercial use under a company called Asia Property Development Ltd, and Delhi-based real estate firms DLF Ltd and Unitech Ltd have land banks of 10,255 acres and 10,900 acres respectively.

Indian business groups such as DCM Shriram Consolidated Ltd and the Wadia Group have also forayed into real estate development.

Mumbai-based Larsen & Toubro Ltd (L&T) is planning to invest Rs800 million (about Dh72.8 million) in the real estate and urban infrastructure over a period of three to five years through its subsidiary L&T Infrastructure Development Project Ltd (L&T-IDPL).

Private equity investors

The Housing Development Finance Corporation Limited (HDFC), with a 25 per cent stake in L&T-IDPL, would also be contributing to the investment. L&T is developing residential projects in Chennai, Vishakapatnam, Chandigarh, Nagpur and Mumbai. Godrej Properties, the real estate arm of the Rs750-million (about Dh67.57 million) Godrej group, is in deliberations with private equity investors to raise Rs20 million (about Dh1.8 million) for its two realty projects in Hyderabad and Kolkata.

Outsourcing and technology giants Xansa has also entered into an agreement with Alpha Tiger Property Trust Ltd for sale and leaseback of the company's real estate interests in India.

Residential accommodation has also peaked dramatically across the board. In the recent Regional Economic Outlook for the Asia Pacific region, the International Monetary Fund (IMF) noted that in terms of prices of residential properties India stands second only to New Zealand in the region.

It added that the real estate stock prices in India increased 14 per cent during 1999-2006.

"India is the most exciting real estate market in Asia," says Michael Smith, head of Asian real estate investment banking at Goldman Sachs. "It's one of the last major countries in Asia with an improving market."

Global business

According to experts, India's domestic real estate market is worth about $14 billion (about Dh51.49 billion). "It is currently growing at 30 per cent per annum," says Manoj Vaish, President and CEO, Dun and Bradstreet, India, which provides global business information.

"Last year it was sort of a gold rush for the Indian real estate sector. A massive influx of FDI was witnessed into this sector," he says.

According to Rajni S. Ajmera, President, Confederation of Real Estate Developers' Associations of India (CREDAI), "Indian real estate has emerged as a global destination for the world's top construction companies, architectural firms and allied industries."

The realty boom has now shifted to the smaller Indian cities, including Guwahati, Nagpur, Bhubaneswar, Ludhiana, Surat, Kochi, Indore, Vishakhapatnam, Mysore and Coimbatore.

Construction industry

The realty boom has quite naturally led to a spurt in construction activity. In 2006, after computer software, telecommunication and financial sectors, the construction industry was the fourth major recipient of FDI.

According to a survey by global executive search firm, EMA Partners, riding on the fast growing IT, ITES, retail and financial services boom, the Indian realty market is expected to witness a massive demand for architects and civil engineers.

In fiscal 2007-08, more than 1,000 architects and 5,000 civil engineers are expected to be added, a growth of 30 per cent over last year. The real estate sector boom has also led to a mushrooming of Indian billionaires.

According to the Forbes list of billionaires, five Indians from the real estate sector with a combined wealth of $24.5 billion (about Dh90.1 billion) figure in the coveted list.
Indian realty is big business.