Reflecting India's growth

Foreign investment feeds India's already robust real estate market.

In a recent disclosure by Forbes magazine, seven of the 54 Indian billionaires are real-estate developers with a net worth of over $1billion each. DLF's Kushal Pal Singh leads the list. Singh is considered one of the world's richest real-estate developers with a net worth of over $10 billion (about Dh36.71 billion). Barely a year ago, the Indian real estate sector had only three billionaires — Singh, Ramesh Chandra and Rajan Raheja. It now includes Rakesh Wadhawan of HDIL, Niranjan Hiranandani of London (listed Hirco), Parsvnath Developers' Pradeep Jain and Omaxe's Rohtas Goel.

As property prices continue to pole vault into the stratosphere, the world is being readied for more Indian real estate billionaires.

The Indian realty sector is being eyed by several international players now. The sector is estimated to grow by up to 33 per cent to $50 billion (about Dh183.59 billion) by 2010 making India an appealing investment option for both domestic and foreign investors.

India is the only country in Asia that offers a 20-25 per cent return on commercial and residential properties According to Associated Chambers of Commerce and Industry of India (Assocham), Foreign Direct Investment (FDI) in the Indian realty sector is expected to jump around six-fold to $30 billion (about Dh110 billion) over the next 10 years. The real estate market, which currently stands at $14 billion (about Dh51.4 billion), is expected to reach $102 billion (about Dh304.5 billion) in the next decade.

Quite rightly, India is attracting the big players in droves. A United Arab Emirates-based project development company, Rakeen, and Chennai-based mining firm Trimex Group plan to jointly invest up to $5 billion (about Dh18.36 billion) over five years in the Indian real-estate market. Rakeen, promoted by the government of Ras Al Khaimah, has partnered with Trimex to form a joint venture company known as Rakindo Developers Pvt. Ltd. It has already invested $100 million (about Dh367.2 million) in India and will invest another $100 million in the next few months.

Rakindo plans to raise the $5 billion through a debt and equity mix. According to Prasad Koneru, managing director, Rakindo Developers, the joint venture company will raise funds in India as borrowing in the overseas debt market is not allowed in the country. The $5 billion investment by Rakindo would be one of the largest investments in the Indian real-estate market by a company based overseas.

Rakindo plans to develop 50 million square feet of residential, commercial and office space over the next seven years in the smaller cities of India. "We would prefer to develop properties in tier II cities in South India as the large cities are congested," Koneru adds.

Rakindo will begin its India operations in the first quarter of 2008 with a $1.5 billion (about Dh5.5 billion) integrated township and special economic zone project in Coimbatore. The township, spread over 1,000 acres, is being developed in partnership with the Tamil Nadu government.

Rakindo also plans to build a marina outside Chennai on the East Coast Road to Puducherry in Tamil Nadu. Nakheel, another Dubai-based developer, has also announced a $10 billion (about Dh36.7 billion) plan to invest in Indian real estate in partnership with DLF, India's largest listed developer.

There are several others who are zeroing in. Trump Organisation, the largest high-end condominium builder in the United States, is also in the running for a slice of the pie. "We are looking for joint venture partners to enter India. We are interested in the major cities for investment," noted Donald Trump Jr, executive vice president (development and acquisition), Trump Organisation. "At a later date, we may enter the secondary and tertiary cities as they grow." Trump Organisation affirmed that it was also looking at developing hotels and resorts.

Other global real estate majors such as Dubai World, Smart City of Dubai, Kishimoto Gordon Dalaya, Khuyool Investments, Bonyan Holding, Plus Properties, ABG Group and Al Fara's Properties are also descending on the Indian real estate market with an investment of around $20-$25 billion (about between Dh72-Dh87 billion) in the next 12-18 months. Additionally, over 50 global developers are currently in India scouting for joint venture partners and tie-ups with various state governments.

According to Hussain Sajwani, chairman and founder DAMAC Holding (a Dubai-based leading real-estate firm), plans are being readied to invest around $3-$5 billion in the Indian market. "We are in negotiations with various Indian developers for a possible joint venture, and hope to enter the market in the next 12 months," he says.

Gulf Finance House (GFH) has decided to invest over $2 billion (about Dh7.3 billion) in a site close to Navi Mumbai. It has already raised $630 million (about Dh2.31 billion) towards the initial development and infrastructure requirements of the project. GFH has signed a wide-ranging MoU with the government of Maharashtra for the development of Energy City India. Further south, in Kerala, Dubai Internet City has picked Kochi to set up a Smart City project and IT and media hub. The initial investment for the Smart City, being executed by the DIC management, will be over $400 million (about Dh1.46 billion).

According to Assocham president Venugopal Dhoot, foreign developers can, as of now, undertake construction activities on a minimum space of 50,000 square feet which may be raised by the government over a period of time resulting in more FDI to the sector.

He points out that with the rapid growth of the IT sector, which would require 200 million square feet and around 20 million dwelling units, the real estate sector is set to grow exponentially.

"Increase in purchasing power and exposure to organised retail formats have redefined the consumption patterns for dwelling units due to which retail projects have mushroomed in smaller towns and cities," he notes.

The Asian Development Bank (ADB) confirms that India will require some 10 million housing units alone by 2030 and with current central bank restrictions on domestic real estate lending, inward flows of overseas capital will be required. According to Assocham, the retail market is likely to grow at around 35 per cent, which will again help real estate developers.

Retail spaces will be large with the mushrooming of several shopping malls with over 1 million square feet of space. The chamber estimates that nearly 30 million square feet of organised retail space is currently available, and another 90 million square feet is likely to be added by 2008 from over 265 mall projects.

Mall of India, planned by DLF, will have 32 acres spanning a huge entertainment area and large city town squares.

Residences are only a part of the construction boom sweeping India. It is estimated that the construction industry, currently valued at $70 billion (about Dh257 billion), will rise to $150 billion (about Dh550.8 billion) by 2011, requiring manpower of close to 100 million.