Sunday 30 September 2007

Global real estate funds to invest $ 5 Bn in India

International real estate funds are expected to pump in $ 5 billion into the Indian real estate market by the first quarter of 2008 in addition to the $ 3 billion they have already invested in the country, according to private equity players, reported FE. While Yatra, a company listed on the European bourses, will raise Rs 500 crore, Canada-based Trinity Capital too may hike its exposure in the Indian real estate market. Besides this, PE firm Blackstone, Deutsche Bank, Morgan Stanley and Warburg Pincus are all planning big in India, and so are global real estate developers such as Tishman Speyer, Hines, Ascendas, Nakheel and Emaar.

Explaining the rationale behind the move, Anuj Puri, country head and chairman of global property consultant Jones Lang LaSalle Meghraj, explained, “These international real estate funds have already invested in the Indian real estate market. The real estate segment here provides better returns on investment to global investors and developers as compared to countries of their origin or most other countries of the world. The return on investment on development projects vary from 25% to 35% per annum. The return on rental incomes vary from 7% to 9% on residential properties and 10% to 12% on commercial properties. The real estate market in India, at present, is of the size $ 12 billion, and is likely to grow to $ 50 billion by 2009-2010.”

According to Ganesh Raj, senior partner and head, real estate practice, Ernst & Young India, “In order to meet the increase in urbanisation, rise in population, denuclearisation of families and demographic shifts, around 10 million new housing units are needed to be added every year, which translates into 5 billion sq ft of additional space to be built per year, assuming the size of an average dwelling unit at 500 sq ft.”

Besides this, there is also an added demand for 25 million sq ft of retail space in the country every year. There is an estimated demand of 60 million sq ft of office space per year for the next five years, requiring an estimated investment of $ 7 billion per annum. “Without international real estate funds and international developers pumping in huge money, it is difficult to meet such huge growing demand in these fields. Also, there will be more transparency in the organised investment system,” added Puri.