Indian Real Estate A Hub for Global Investors:

Indian Real Estate is vibrant and continues as a robust story with new initiatives being taken by Government to transform the Indian landscape. The year 2006 started with a welcome note, as the Government of India opened the construction and development sector in February 2006, and allowed 100 per cent foreign direct investment (FDI) in order to attract investment in the vital infrastructure sector.

The relaxation of the FDI ceiling saw many serious players from the Asia, Europe and middle-east keen on investment in Indian real estate. Emaar properties, Dubai has joined hands with an Indian based Developer, which could be the Indias largest FDI in the realty sector GE Commercial Finance. Real Estate has invested $63 million in an $800 million fund that is building IT parks. Calpers and the Oregon Public Retirement Fund have invested $100 million each in the IL&FS India Realty fund. India Fund in Kuwait planned to invest around Rs 70 crore with the specific objective of diversifying investments in Chennai and bangalore real estate classifieds. Trinity Capital of UK would invest 250 million pounds in commercial development sites, retail, hospitality and construction. Real estate funds set up to invest only in India have already raised more than $2.7 billion. And many new funds worth as much as $4 billion are being planned by J.P. Morgan, Britain's Knight Frank, and other foreign investors. Warburg Pincus, the largest private-equity investor in India, says it is spending nearly a third of its time studying opportunities in this area.

The lucrative bangalore real estate classifieds has also attracted Morgan Stanley and Merrill Lynch. They both have tied with local developers and invested $68 million and $50 million respectively. TCG Group is floating a realty fund worth half a billion dollar and other three large infrastructure mutual fund have already hit the markets, which clearly shows the bullishness in the markets

India has enormous potential in all its property investment categories including the hotels. The surge in foreign investment, more joint ventures between Indian and foreign companies, the growth of Indias domestic industries, a large pool of qualified workers and the population growth would push Indias real GDP by 6% p.a over next 10 to 15 years greater integration with the world economy have created more employment

opportunities and this would fuel demand for office, retail and residential properties. According to an estimate, atleast 55 million sq. m of extra office space would have to be completed and 600 new shopping centres would be developed by the year 2010. Not only these, by the year 2030. India would need atleast 10 million new housing units per year (Duetsche Bank researchers in their latest India Special Publication)

With the change in environment, old bangalore real estate classifieds firms are focusing on the realty segments like shopping malls. For example, Akruti, a Mumbai based developer is shifting towards retail property investments in India. It has already tied up with DLF to deflect competition from Omaxe etc. They have begun talks with foreign investor and intend to invest about a billion dollars in retail real estate over the coming years. According to the Chairman of Akruti Nirman Ltd., they have set aside huge land area exclusively for mall development

Concerns about an asset-price bubble have led the Reserve Bank of India to raise the risk weightage on real estate loans extended by banks, and mortgage rates have gone from 7.5% to about 9.5% as a result. That's still well below the 15% rates that most Indians were used to, but it's enough to raise questions about whether the speculation of the past year and a half, which has driven land prices up by 30% to 100% and real estate stocks up as much as 2,000%, may be coming to an end.

Inspite of this boom, alarmist fear that the growth is like a bubble and may burst any time. According to some experts, rise in the price is due to the debt-driven speculation and in India; the bubble can burst due to new government taxes owing to steep increase in crude oil and natural gas prices. The absence of liquidity and upward pressure of pricing remain as the main cause of worry to some experts. Property investments in India are not risk-free. Bangalore real estate classifieds market is not transparent and is far behind European or US standards. Therefore, it would be important for foreign investors to have a professional local partner. Further the tax policies are subject to unexpected changes. It has be found that the quality of building standards are not uniform and are not rigid as in the other developed countries. It is because of the fear that the Reserve Bank of India has raised the risk weightage on real estate loan advanced by banks and mortgage rates have gone from 7.5% to about 9.5% as a result. This increase is enough to raise questions about whether the speculation of the past year and a half, which has driven land prices up by 30% to 100% and real estate stocks up as much as 2,000%, may become a history. To achieve the target returns, several funds are focusing on second-tier towns and second-tier developers.