FII eyes real estate in a big way

They had looked hesitant for a while, but foreign investors and private equity funds have now begun to pour big money into India's property development business. Morgan Stanley has just invested $68 million in Mantri Developers. Siachen Capital is investing $30 million in a joint venture with Nitesh Estates, with the promise of an additional $70 million investment in the future. The DLF Group recently announced a 50:50 joint venture with the UK-based , infrastructure major Laing O'Rourke with an initial corpus of Rs 500 crore. Mumbai-based developer Runwal Group and Singapore-based CapitaLand Group have entered into a 51:49 joint venture to develop residential projects. Bangalore-based developer RMZ Corp appears close to sealing a private equity deal. The Brigade Group expects to have a foreign partner in place in six months. The Sobha Group's immediate priority is its IPO, expected to happen in June, but it is also looking at FDI for particular projects. Industry sources say leading builders meet 3-4 investors every week. While it has taken more than a year (since the government relaxed FDI rules in real estate) for the first agreement to fructify, deals are now expected to happen faster.
"There were concerns about the lack of transparency in Indian real estate transactions , but developers and funds are finding ways to overcome that — through putting systems in place and creating special purpose vehicles to channelise the funds," say sources. According to UTI Venture Funds CEO K E C Rajakumar, India's hugely promising infrastructure story is making international funds look actively at this country. "Real estate is the most visible asset class from a venture capitalist point of view," he says. The opportunity can be seen in the performance of listed construction and property development companies. "Some of the biggest stockmarket gains people have had is in these companies," says Sobha Group MD J C Sharma. Analysts say companies like IVRCL Infrastructure, Gammon India, HCC, ERA Constructions , Unitech, Mahindra Gesco, D S Kulkarni Developers and Ansals have all outperformed the sensex by huge margins.
For property developers too, the prospect of private equity is a huge attraction. It enables them to invest in larger projects and expand beyond traditional bases, and also increases their staying power. "It comes in handy in the event of a market correction , for the partner too shares the costs," says an industry analyst. But the benefit goes much beyond cash. HDFC general manager S N Nagendra says developers look for technical support in the form of processes and construction technology from the partners. "One of the biggest problems in the domestic construction sector is the lack of timely implementation of projects that global technology can help to address," he adds. RMZ Corp vice president Arshdeep Sethi says, "International funding companies also bring with them their international relationships, which are of enormous value in getting, for instance, clients for the properties that are built."