Indian Properties

The realty sector in India is on a roll, attracting billions of dollars in international funding, as developers are transforming city skylines.

For the Indian real estate industry, 2006 has indeed been an unforgettable year. Property prices have soared across the sub-continent, despite millions of sq ft of real estate being developed, as demand continued to soar.

But for the first time in the history of the Indian real estate sector, funding of projects has not been a problem. There has been an abundance of money flowing into the sector, as foreign investors ploughed in the moolah, and Indian developers floated issues in overseas exchanges, raising cash for mega projects.

The current boom in the Indian real estate sector is different from previous ones in many ways. The property boom in the early 1990s was fuelled by speculative buying. and projects were funded by investors out to make a killing. This time, investors are mainly institutional, and are not looking for a short-term return, but are here to stay for the long run. A majority of the buyers are also actual users, who are acquiring properties for their own use. A large number of buyers are borrowing funds from housing finance companies (HFCs), as housing loans have become affordable. While in the 1990s, borrowers had to pay hefty rates on housing loans (up to 18 per cent), today it is around half that level, enabling a wider group of people to access loans.

Again, unlike in previous bull-runs, there has been no slackening in supplies, as developers are taking up massive projects around the country. About 15 years ago, when there was a boom, it was mainly in cities like Mumbai, Pune. Bangalore and Delhi.

But there is no doubt that the industry is witnessing boon, conditions. Property prices in cities like Mumbai, Delhi and Bangalore have been expanding by 75 to 100 per cent. Sele properties in exclusive localities in these metros are also fetch record prices.

The authority also auctioned 10 other commercial plots, for prices ranging from Rs380,000 to Rs480,000 a sq metre. In India's financial and commercial capital. the Mumbai Metropolitan Region Development Authority (MMRDA). auctioned a 55,000 sq metre plot at the Bandra-Kurla Complex (BKC) to the Mukesh Ambani-controlled Reliance Industries, for a whopping Rs 11 billion. State-owned National Textile Corporation (NTC) raised over Rs20 billion by selling land owned by its textile mills. Top developers from Mumbai, Delhi and other cities had participated in the auction. Most Indian cities are also witnessing an acute shortage of land, as top developers have acquired vast tracts of land. Demand for land is soaring in urban India, especially with hundreds of special economic zones (SEZs), IT and bio-tech parks, airports, shopping malls, and other projects coming up by the hundreds.

The billions of dollars that are being invested in infrastructure development are also having a terrific impact on the real estate sector. Property prices along the Delhi Metro, the Mumbai-Pune expressway, the Ring Road in Bangalore, and other infrastructure development sites have shot up phenomenally in recent months.

According to the Federation of Indian Chambers of Commerce and Industry (FICCI), India's real estate sector is worth around $12 billion, and growing at a brisk 30 per cent annually. The Associated Chambers of Commerce and Industry of India (ASSOCHAM), in its study. 'Future of Real Estate Investment in India,' values the industry higher at $16 billion. The ASSOCHAM study notes that the sector is expected to burgeon to $60 billion by 2010, with FDI inflows into the sector amounting to between S25 billion and $28 billion. According to ASSOCHAM, during fiscal 2006-07, of the $8 billion FDI inflows into India, the real estate sector is expected to account for 26.5 per cent of the money. Foreign investors, both institutional and property developers, have been pouring money into the Indian realty sector in recent months. About $10 billion in FDI is already in the pipeline.

International investors from around the globe are eyeing the lucrative 'Indian property sector. Some of the major investors so far include Royal Indian Raj International, a Canada-based NRI group (with investments of $2.9,billion), the Blackstone group and Goldman Sachs ($1 billion each), Dubai-based Emaar Properties ($800 million), Pegasus Realty ($150 million), Citigroup ($125 million in the initial phase), Lee Kim Tah Holdings ($115 million), the Salim group of Indonesia ($100 million), Morgan Stanley ($70 million) and GE Commercial Finance Real Estate ($63 million). Last month. JP Morgan's Principal Real Estate Investments invested $60 million in a premium residential project being developed by Lodha Builders in Mumbai. The project is coming up on mill land sold by the NTC


The world's largest financial services group, Citi, is planning to invest $1 billion into the Indian realty sector. Citigroup Property Investors has already raised $500 million through an India-dedicated fund. The company plans to invest in projects in Mumbai, Delhi. Bangalore, Chennai and Pune. GIC Real Estate Pte Ltd, the real estate investment arm of the Singapore government's investment arm. GIC, is also investing Rs5 billion in projects in Chennai and Mumbai. The company recently invested in a residential township in Chennai, and a shopping mall project in Mumbai.