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Deeptha Rajkumar

`More than $5 b is to be invested in Indian real estate'

Mumbai , June 29

Fears of an interest rate hike, coupled with doubts of a revival in the equity market, may lead to a slowdown in property prices by November-December this year. Analysts said that there could be an erosion of around 30 per cent from peak levels. However, this is expected to further precipitate foreign investment into the real estate sector in a big way.

"Asia, in particular India, will soon become hedging strategy for the US and European investors. As such any slowdown in prices may step up investment into this sector," a source said.

Some news to cheer about

For property builders in Maharashtra, the repealing of the Urban Land Ceiling Act (ULCA) may prove to be the icing on the cake, as it may throw open lot of space and rationalise prices. The Act was enacted in 1976 to impose a ceiling limit on vacant land in urban areas.

"This will give further impetus to the mortgage/rental market, which will develop in a big way. Floor space index in Mumbai is restricted. If you have to grow a city, it will have to grow vertically. We need to follow the Singapore and Hong Kong model. Additionally, one has to remember that land cannot be invented or recreated. For a city to grow, one also needs to look at reclaiming land in a big way," an industry expert said.

After residential and office space, the central government's new special economic zones (SEZ) law is attracting good response from the corporate sector. The new SEZ law was approved in February 2006 and the Government is said to have received over 100 applications already.

Apart from corporate interest in the real estate sector, there is a perception that insurance companies may also consider it a viable business.

Bullish on growth

However, industry sources maintain that the Indian property sector is still at a nascent stage. Commenting on the growing overseas interest and the funds looking to invest in India, sources said that the future market will be decided by government policies and how the market builds up. As per reports, more than $5 billion worth of funds is to be invested in the Indian real estate market.

"Though correction is inevitable in property prices, it will continue to be the best investment avenue for over two decades," said a market source.

As per reports, there are reportedly more than 15 property developers listed in India with a cumulative market cap of nearly $6 billion. This is expected to expand in financial year 2007 considerably if the fund raising plans of many players go as per plans.

As per a CLSA Asia-Pacific report, while DLF and Parsvnath are expected to come out with an initial public offering soon, many others such as Puravankara, Sobha, Brigade (all from Bangalore), Omaxe, Ansal Properties, Mahindra Gesco, Peninsula Land, etc are planning to raise money through the public/private route — significantly expanding the choice available.

In March 2005, the Government of India had allowed FDI in the real-estate development sector under the automatic approval route for large projects (at least 25 acres or a minimum built-up area of 50,000 sq m).

Subsequently, foreign developers like Keppel Land, Capital and Emaar etc have tied up with local players such as Puravankara, Runwal Group, MGF in that order. While this is not expected to materially change the competitive scenario, it is expected to help improve technology and execution.

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