Indian_real_estate__Boom_or_Bubble_ by georgetitan

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									Title:
Indian real estate: Boom or Bubble?


Word Count:
737


Summary:
When Farallon Capital Management, a U.S. hedge fund, and its joint-venture partner, Indiabulls, snapped up
an 11-acre property in central Mumbai in March 2005 for $54.5 million an acre, the purchase was called an
act of idiocy by local developers. A few months later, when the same joint venture offered $95.5 million an
acre for a nearby property, its was the second-lowest bid.



Keywords:
India real estate news, India Real Estate Buying Selling Tips, India real estate, real estates agent,
commercial real estate property, commercial property sales, online real estate listings



Article Body:
Property prices are rising fast as the tech boom spreads across the country.


When Farallon Capital Management, a U.S. hedge fund, and its joint-venture partner, Indiabulls, snapped up
an 11-acre property in central Mumbai in March 2005 for $54.5 million an acre, the purchase was called an
act of idiocy by local developers. A few months later, when the same joint venture offered $95.5 million an
acre for a nearby property, its was the second-lowest bid.


Property prices in India are rising fast, and not just in the biggest cities. As the tech boom spreads across the
country, as more Indians buy homes, and as the economy grows at faster than 8% a year, real estate is
attracting more investors, many of them from abroad.


“India is one of the last few countries where there is primary demand for real estate rather than individuals
trading up,” says Rajiv Sahney, who runs the India operations of New Vernon Advisory, a $1.4 billion New
Jersey hedge fund.


Merrill Lynch forecasts that the Indian realty sector will grow from $12 billion in 2005 to $90 billion by
2015. “India is the most exciting real estate market in Asia,” says Michael Smith, head of Asian real estate
investment banking at Goldman Sachs. “It’s one of the last major countries in Asia with an improving
market.”


That improvement worries some. 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.


The run-up in prices has attracted the likes of Morgan Stanley, which has invested $68 million in Mantri
Developers, a midsized construction firm in Bangalore, and Merrill Lynch, which invested $50 million in
Panchsheel Developers, a regional builder. Foreign companies have also poured money into funds that
invest in Indian developers. GE Commercial Finance Real Estate, for example, has invested $63 million in
an $800 million fund that is building IT parks, and Calpers and the Oregon Public Retirement Fund have
invested $100 million each in the IL&FS India Realty fund.


Real estate funds set up to invest only in India have already raised more than $2.7 billion. And 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. And Deutsche Asset Management recently hired someone to head
its real estate activities in India. “As the largest active managers of real estate funds in the world,” says
Edouard Peter, head of Deutsche Asset Management Asia Pacific and Middle East, “we expect to be
actively raising and investing funds in real estate in India.”


It isn’t going to be a cakewalk. “It’s not easy to do business in India,” says Seek Ngee Huat, president of
GIC Real Estate, an arm of the Singapore government that is planning to invest several hundred million
dollars in Indian real estate over the next two years. “It’s difficult finding suitable partners who have the
same long-term objectives, as most firms are small and family run.”


Already margins have shrunk. “The vast majority of the planned real estate funds are targeting annual rates
of return of between 25% and 30%, but I’m skeptical that the vast majority will cross 20%,” says Mumbai
real estate advisor Rajiv Bhatia.


To achieve the target returns, several funds are focusing on second-tier towns and second-tier developers.
“Many investors are going to lose their shirt here, as it’s an opaque market, and a wrong partner can easily
do you in,” says S. Sriniwasan, executive director at Kotak Mahindra Realty fund in Mumbai. There’s also
bureaucracy and corruption to deal with. Says Ashwin Ramesh, who runs a boutique fund called Primary
Real Estate Advisors: “There are a couple of hundred malls currently being developed across India, and
predictions are that only 10% will be successful. Yet every developer feels his mall will be among the
survivors.”


This article is sponsored by: <a
href="http://www.indiarealestateblog.com">www.indiarealestateblog.com</a>
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