Wednesday, January 23, 2008

Tuesday, November 13, 2007

India - Real Estate Investment

The growth curve of Indian economy is at an all time high and contributing to the upswing is the real estate sector in particular. Investments in Indian real estate have been strongly taking up over other options for domestic as well as foreign investors.

The boom in the sector has been so appealing that real estate has turned out to be a convincing investment as compared to other investment vehicles such as capital and debt markets and bullion market. It is attracting investors by offering a possibility of stable income yields, moderate capital appreciations, tax structuring benefits and higher security in comparison to other investment options.

A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young has predicted that Indian real estate industry is poised to emerge as one of the most preferred investment destinations for global realty and investment firms in the next few years.

The potential of India's property market has a revolutionizing effect on the overall economy of India as it transforms the skyline of the Indian cities mobilizing investments segments ranging from commercial, residential, retail, industrial, hospitality, healthcare etc. But maximum growth is attributed to its growth from the booming IT sector, since an estimated 70 per cent of the new construction is for the IT sector.

High demand for commercial real estate
The commercial property market has been growing at an annual rate of approximately 30% over the past eight years across major locations in India. Moreover, there is an up shooting demand for 200 million sq. ft over the next five years.

Real estate industry research has also thrown light on investment opportunities in the commercial office segment in India. The demand for office space is expected to increase significantly in the next few years, primarily driven by the IT and ITES industry that requires an projected office space of more than 367 million sq ft till 2012-13.

Retail sector facilitating real estate growth
Apart from the IT and ITES industry influencing the Indian real estate sector, India is also getting into the knowledge based manufacturing industry on a large scale. Retail, one of India's largest industries, has presently emerged as one of the most dynamic and fast paced industries of our times with several players entering the market.

The contemporary retail sector in India which is reflected in sprawling shopping centers and multiplex- malls is also contributing to large scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business. Over 500 shopping arcades are under construction phase and will be operational by 2008.

Accounting for over 10 per cent of the country's GDP and around eight per cent of the employment retailing in India is gradually inching its way toward becoming the next boom industry. And if industry experts are to be believed, the prospects of both the sectors are mutually dependent on each other.

Another emerging trend in real estate sector in India is investment in the hospitality or hotel industry. The exceptional boom in inbound tourism and the IT sector has also led to an unprecedented shortage of rooms, with hotels all over the country witnessing their highest-ever occupancy rates.

SEZs - the emerging investment option
Moreover, as real estate sector expands beyond the city limits with government promoting industrial belts, real estate developers are eyeing special economic zones (SEZs) as an extension of their business. Several upcoming special economic zones are also expected to provide the momentum to the commercial office space development in related area where the land comes cheaper; and a SEZ developer is entitled for tax exemptions like a 10-year corporate tax holiday.

On the whole, Indian real estate sector is slated to mark the growth to $40-50 billion in the next five years. Also, India is witnessing developments of hi tech cities, a trend that has been embraced by most Indian cities.

Further, India's improving image, as a corporate base for Asian markets and strong growth opportunities in emerging sectors such as financial services, pharmaceuticals, telecommunications, and biotechnology will also boost demand and broaden the occupier base.

FDI - inviting real estate investments
Not surprisingly, most foreign investors have aimed India in a big way, largely through joint ventures. Along with curtailing the risk factor, it provides the participating companies an exit route. Since 2005, when FDI in Indian real estate sector was permitted, US $7-8 billion have been parked in.

The Government of India's liberalization and economic reforms programme encourages industrial policy reforms that have reduced the industrial licensing requirements, removed restrictions on investment and expansion, and facilitated easy access to foreign technology and FDI. Increased inflow of investments arising out of flexible FDI policies is sure to have a direct and positive impact on the real restate scenario of India. More investments mean more job opportunities and more jobs means more workforces. This has created a huge demand and supply gap in housing in India. The booming IT industry has also resulted in a large section of young investors who with high-income jobs chose real estate as an investment option.

Thursday, November 8, 2007

Gold as a good investment option in India

MUMBAI: The Associated Chambers of Commerce and Industry of India (Assocham) says buying gold has become one of the most preferred forms of investments in the country.

According to Assocham President Venugopal Dhoot, income from gold has shot up by nearly 34 percent as the yellow metal is now the preferred choice for a major number of investors in the country.

Addressing an Assocham function in Mumbai, he said: “Since disposable incomes of average Indians have gone up significantly, gold has become a preferred choice of investment for a large number of investors”.

Gold imports would grow by 250 tonnes by financial 2008, he said.

Dhoot called for much needed investments into the country to exploit its mineral resources fully and said there is an urgent need to make the country a unique trading hub for gold and diamond businesses.

He pointed out that since the economy is dragging in the United States, the value of dollar has declined drastically against rupee and thus could inspire gold investors.

According to Assocham’s assessment, gold imports in the current financial year would be nearly 1000 tonnes, out of total around 700 tonnes would go for jewellery making and remaining would be used for investments in the form of bars and coins.

The bullish phase in gold would also continue because gold production worldwide has been restricted to 2,500 tonnes only against its demand of over 5,000 tonnes.

Tuesday, November 6, 2007

KPO boom in India

If reports from reliable sources are to be believed, India is to experience the KPO boom, next. The Mckinsey Global Institute estimates that the volume of offshore outsourcing will increase by 30 to 40 % for the next 5 years. 3.3 million Jobs will be generated overall by the year 2015. Deloitte research predicts the outsourcing of 2 million financial sector jobs by 2009.

In this scenario India will act as the primordial sea using its biggest strength - that is a supply of at least 2 million graduates and 300,000 Post Graduates - to help the KPO industry evolve into a mass job generator. There are many countries in the race. However, today all roads leads to India.

Primary reasons for such an attraction being the cost of labour, which is significantly lower than in the West and that India is tested ground. Through its BPO and IT industries, India has proven that it can deliver high quality services.

Equity research is one of the key areas in which KPO will flourish. On average Wall Street is losing $ 4 bn a year on producing equity research. To save on costs and to increase their value proposition to clients, Wall Street is discovering the value proposition of operating in low cost countries.

Many global investment banks have also been quietly building their back office research in India. No matter how cost effective a back office in India might prove to be it is still a field where experts can establish themselves and carve a niche for themselves attaining marked professionalism. Copal Partners is one such firm having complete expertise in the financial research outsourcing market

Joel Perlman, Co-founder and President of Copal Partners says that "outsourcing is a very good thing for India. It will totally change the Indian economy. In 10 years, India will have become the knowledge center of the world. And it will not be because India is cheaper (this will go away), but because India has the scale in terms of people."

Real Estate Boom in India

The real estate story in India is growing bigger by the day. Industry experts believe that Indian real estate has huge demand potential in almost every sector -- especially commercial, residential and retail.

Growth in commercial office space requirement is led by the burgeoning outsourcing and information technology (IT) industry. By 2010, the IT sector alone is expected to require 150 million sq.ft. of space across major cities. It is estimated that in the residential sector there is a housing shortage of 19.4 million units out of which 6.7 million are in urban India. The increase in purchasing power and exposure to organised retail formats has redefined the consumption pattern. As a result, retail projects have been mushrooming across even B-grade cities. The retail market is expected to grow at around 35 per cent. Industry observers feel that this growth is facilitated by favourable demographics, increasing purchasing power, existence of customer-friendly banks and housing finance companies, professionalism in real estate and reforms initiated by the Government to attract global investors.

Global majors in Indian real estate

Policy changes introduced by the Government in February 2005 allowed 100 per cent foreign investments in construction projects with fast-track approvals. But the real attraction for foreign investors is potential investment returns of 25 per cent and more in Indian projects that might be hard to come by in the US and in Western Europe today. A report by property consultants Jones Lang LaSalle estimates that US$ 10 billion foreign investment will be injected into the Indian real estate sector in the next 12-18 months. International companies like Ayala of the Philippines, Signature from Dubai, Och-Ziff Capital, EurIndia and Old Lane have indicated their interest in entering the Indian real estate market soon. On the cards is sizeable FDI inflow from Malaysia, followed by the UK, US, Israel and Singapore.

Industry sources say over 90 foreign investors are already in the country tapping investment avenues. Nearly two dozen US funds are raising US$ 3.5 billion for investments in Indian realty. Those raising the funds include Wall Street powerhouses such as the Blackstone Group (US$ 1 billion) Goldman Sachs (US$ 1 billion), Citigroup Property Investors (US$ 125 million), Morgan Stanley (US$ 70 million) and GE Commercial Finance Real Estate (US$ 63 million). Others raising funds are JP Morgan, Warburg Pincus, Merrill Lynch, Lehman Brothers, Warren Buffett’s Berkshire Hathaway, Colony Capital and Starwood Capital.

In mid-2007, Morgan Stanley closed a deal worth about US$ 150 million with Oberoi Constructions in Mumbai. The Nakheel Group in Dubai entered into a US$ 10 billion deal with DLF for residential projects in Tier I and II cities. This was followed by three financial institutions -- Khaleej Finance and Investment (KFI) from Bahrain, Kuwait Investment Company (KIC) and Kuwait Finance House (KFH) -- from the Middle East promoting a US$ 200 million fund for investing in India. Called the 'Indian Private Equity Fund', it targets activities with controlled risks in growing sectors like real estate. Close on its heels, California Public Employees’ Retirement System entered India, investing US$ 100 million in a US$ 400-million real estate fund promoted by IL&FS. Ascendas, Asia’s leading business space provider is launching the first property trust of Indian assets worth US$ 500 million in Singapore in July 2007 with the renowned real estate developer Embassy Group.

Financial institutions in real estate

Indian financial institutions are competing with each other to invest in this higher return segment. Some of the prominent companies promoting real estate funds in India are HDFC Property Fund, DHFL Venture Capital Fund, Kotak Mahindra Realty Fund, Kshitij Venture Capital Fund (a group venture of Pantaloon Retail India Ltd) and ICICI’s real estate fund, India Advantage Fund. Regulated under SEBI’s (Securities and Exchange Board of India) Venture Capital Funds, these are closed-ended schemes with an initial public offer (IPO) contributing to a discount on NAVs (Net Asset Value).

The Tata group has joined hands with private equity firm, Xander, through its group company Trent in April 2007 to raise US$ 1 billion for an institutional retail real estate fund. India's top real-estate firm DLF has raised US$ 2.24 billion in the country's largest initial public offering in June 2007. It has also entered into a joint venture agreement with Indian pharmaceutical major Ranbaxy group company Fortis Healthcare to set up hospitals across the country with investments of about US$ 1.5 billion. Meanwhile, an HDFC-sponsored real estate fund has been permitted to bring up to US$ 790 million of FDI into the country, while Indiabulls Real Estate (IREL) is looking to raise up to US$ 1.2 billion.

Retailers and malls

India has emerged as the most attractive destination for retailers in 2007. According to the latest AT Kearney study, for the third year in a row, India leads the annual list of most attractive emerging markets for retail investment followed by Russia and China.

Organised retail, which currently accounts for only 4.6 per cent of the US$ 270 billion Indian retail sector, is expected to grow at 37 per cent in 2007 and 42 per cent in 2008, according to India Retail Report 2007. The report adds that organised retail in India has the potential to add over US$ 45 billion business by the year 2010.

This is expected to create a demand for around 220 million square feet of retail space by 2010. According to industry estimates, 27 million square feet of organised retail space is currently available. Another 90 million square feet is expected to be added by 2008 from 263 mall projects. Of these, 18 million square feet is slated to come up in Delhi as well as in Mumbai, 9.5 million square feet in Ludhiana, 6 million square feet in Chandigarh and 3.6 million square feet in Ahmedabad.

With the retail sector experiencing a boom, the country is witnessing a spurt in extremely large retail spaces. Shopping malls with over 1 million sq ft of space have become the order of the day. About 20 of these are now at various stages of construction across the country. In the National Capital Region (NCR), Unitech's Great India Place has a million square feet (sq ft) of retail space. In Mumbai, at least eight malls covering over 1 million sq ft each include R-Mall at Ghatkopar, and two 1 million sq feet plus malls proposed for Thane. In Bangalore, at least three malls with similar dimensions are under development. Ludhiana will soon have a 1.6-million sq ft mall by Today Homes.

As the competition in the market intensifies, builders are going out of their way to be different. Specialised malls, designer brands and multi-movie options are marking the shopper's day out. Gurgaon, on the suburbs of New Delhi, has a jewellery mall and will soon have an auto mall. Bangalore will get an exclusive furniture mall. Two malls, first of their kind, targeting foreign tourists, will come up at tourist hotspots--Goa and Udaipur--with a projected cost of around US$ 22 million each. A furnishings mall is coming up on Elgin road in Kolkata. And India's largest theme amusement park, Noida Entertainment City (E-City), will stand upon 150 acres approximately. Discount malls are also on the rise. Top realtors and local retail chains are developing malls in regional boroughs, specifically to sell premium branded goods at prices 30 to 40 per cent cheaper than the maximum retail price. At least 50 discount malls are expected to come up in the next two years across the country, positioned in the middle-to-the-premium end of the market.

In what could perhaps become a trend in the booming retail business, Reliance Retail, Future Group and Bharti-WalMart are among leading retail companies that are acquiring housing societies and colonies in Ahmedabad to knock down and build mega-retail stores.

Big deals in realty

The biggest mall of the world--Mall of India--planned by DLF Universal along NH-8--will have 32 acres spanning a huge entertainment area and large city town squares offering a total retail experience.

Chennai, on the radar of foreign real estate funds, recently witnessed two big-ticket property deals. AIG Real Estate Fund and RMZ Corporation purchased an 11-acre plot at Guindy for US$ 686.9 milion and Shyam Kothari, in another deal, bought IDBI's 2.5 acres Boat Club property in Chennai for US$ 40.3 million.

Residential development

Majority of retailers are now planning to expand within the current city, and a similar percentage is willing to open new stores in other cities within India. The most confident among them are home and interior retailers and sports apparel/equipment retailers, followed by department stores and jewellery and food retails.

While the last decade saw the transition of sleepy towns like Gurgaon, Noida and Faridabad into enviable addresses, today these tier I towns, as they are called, are saturated and far beyond the means of the middle class. Naturally, the opportunity in the residential development in Tier-II and Tier-III cities--like Hyderabad, Cochin, Chennai, Coimbatore and Pune--is equally enormous.

For instance, Pune, the engineering and automobile hub of western India--about 160-km south-east of Mumbai--is emerging as a major IT centre. With sprawling software parks coming up all over the city and its suburbs, the demand for high-value apartments is growing. Beyond professionals and people looking to relocate from Mumbai or even overseas, are the older people who have sold a bungalow and want to live in spacious, easy-to-manage surroundings. Developers maintain that the bar for the super-premium luxury housing has risen from US$ 231,964 to over US$ 463,929 per unit.

If the year 2006 was marked by some of the country's biggest land deals, the future of India is set to usher in the gold rush of realty.