New realty norms open the door for VC funds
GURBIR SINGH
TIMES NEWS NETWORK [ TUESDAY, OCTOBER 25, 2005 09:37:36 AM]

MUMBAI: Riding on the huge realty demand, India is seeing an investment boom in housing, commercial and retail projects. Over the next year, these will be mainly routed through the FDI path and through real estate venture capital funds. While real estate is expect to account for 18% for all FDI investments over the next year (up from 10.6% in ’04), the VC funds are expected to pump in as much as Rs 5,400 crore over the next year.

Housing projects, that account for 80% of the realty development, and are being driven by a big boom in home-buying. On the other hand, the infotech sector alone is driving commercial development with a demand approximating 75-85m square feet of commercial space over the next five years.

The ‘India Property Investment Review’ released by Knight Frank for the last quarter of this calendar year estimates that there are at least 14 real estate VC funds seeking to enter the market with an investment close to 5,500 crore over the next year. Some of the bigger ones are the IDFC fund with Rs 1,500 crore, the ICICITishman Speyer (India Advantage Fund III) with Rs 1,350 crore and the Ascendas India IT parks Fund with Rs 1,035 crore.

Since the report was put together, a few more funds seem to have announced plans to launch. These include the Piramal Holdings Fund and the Solitaire Fund promoted by a few Singapore-based NRIs. Sebi, so far, has approved the HDFC India Real Estate Fund, the ICICI Fund, Kshitij, Fire Capital and AR Rathi. The HDFC Fund is already operational and has deployed around Rs 200 crore of the Rs 1,000 crore fund.

The HDFC Fund is targeting commercial projects with ‘bluechip’ tenants paying high lease rentals, that will guarantee high yields between 12-20% on investment. The HDFC Fund will also deploy money in projects still under development but expecting completion in 1-3 years, as well as projects on the drawing board expecting completion in 3-6 years. These would typically be high-risk, but high-return projects.

Some funds expect to have a more specific investment target like the Pantaloon-promoted Kshitij aimed at developing malls, while the Ascendas Fund will concentrate on IT Parks. These funds are targeting both Institutions and high net worth Individuals (HNIs). The Kishore Biyani fund ‘Kshitij’ as well as the recently launched Solitaire Fund by some Singapore-based NRIs specifically target HNIs.

“In two or three years, the best commercial and retail properties will be owned by funds and Institutions, thereby changing the way quality is regulated in property,” Knight Frank chairman Pranay Vakil told ET. “However, the Bombay High Court judgement on mill lands has got the foreign funds scared. It has created uncertainty,” he added.

Meanwhile, the relaxation of norms for FDI in real estate and permission for VC funds in the sector seem to have opened a flood gate of investment, recent surveys show. According to AT Kearney’s Global Investor Confidence Survey ’04, India has been ranked as the third most favoured destination for FDI behind China and the US.

According to the Knight Frank report, there are at least 14 large FDI proposals or clearances for housing projects this year.

These include clearances under the old pre-March norms of projects like that of the Salim Group of Indonesia for a township in Kolkata, of Lee Kim Tah Holdings of Singapore for a township in Kolkata, and Singapore’s Keppel Land for a Condominium project in Bangalore. By the end of the current financial year, it is expected that around a billion dollars of FDI in real estate would have been deployed.


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