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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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