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Real Estate Investment Scenario in India

The Indian real estate sector, estimated to be worth approximately US$78.5 billion in FY13 and
predicted to grow to approximately US$140 billion by FY17 has been at the vanguard of the Indian
governments agenda, given its potential to propel economic growth significantly.
The Indian real estate industry in 2013 had slowed, owing to several challenges like subdued sales,
unsold inventory and builders facing a crunch in capital. Political uncertainty, soaring interest rates,
liquidity issues and cautious sentiments affected the industry in 2013 and showed signs of continuing
into 2014 too. However, despite sales being slow in 2013, they were not stagnant. In fact, private equity
(PE) investments in real estate increased by 13% in 2013 compared to 2012. The total inflow in 2013 was
Rs 7,000 crore compared with Rs 6,200 crore in 2012.
The real estate sector in India remains a preferred choice for investors from all over the globe. A growth
in Indias population corresponds to a growth to some degree in health care, education and
employment which in turn inevitably results in higher demand for both residential and commercial
spaces. Given Indias rapid urbanisation, investors have shown an inclination to invest in the real estate
market in a bid to subsequently reap high dividends.
Throughout 2014, housing property sales are predicted to rise and experience steady demand. A key
driver is current talk of the government regulating the real estate sector via legislation to increase
transparency and accountability. Major real estate players have their hopes pinned on the return of a
stable government after the current general elections. A stable government at the centre will attract
more foreign capital into the real estate investment space. Apart from foreign capital, Indian developers
would also be inclined to announce new projects if a stable government were to win power as investor
confidence returns.
Currently banks are reluctant to lend to real estate companies, which has resulted in a rise in the cost of
borrowing. This in turns adds to the overall cost of development as developers have turned to private
lenders who lend at high interest rates of up to 2.5% to 3% per month. Slow moving inventory, high
interest rates and a rise in cost for basic raw materials including sand driven by a government ban in
sand mining have seen construction costs rise by as much as 40% over the past two years. A stable
government will help alleviate these issues and drive consumer and investor confidence.
The move to introduce Real Estate Investment Trusts (REIT) has been pegged as a smart and progressive
one. REITs have been described as an effective instrument to tap cash flow into the Indian economy and
simultaneously aid smaller investors to access income-generating real estate assets. It will be of help to
both investors and developers through better investment and financing choices. Provision of tax
incentives to REITs for investment in housing, especially the affordable housing sector, will considerably
enhance chances of its success.
In 2013, the highest value of private equity investments was in Pune at Rs. 7.8 billion, followed by
Mumbai at Rs. 4 billion. Recent investments in this sector suggest that this industry is poised for greater
stability in the future. Essel Financial Advisors and Managers (EFAM), the private equity arm of
EsselFinance, is raising two real estate-focused funds a domestic fund of Rs 500 crore (US$83 million)
and a foreign fund of US$200 million (Rs 1,200 crore). The focus of both these funds will be investing in
residential projects in Indias top six cities.
Recently, Mumbai-based property developer Rustomjee raised US$61M from global investment firm
Xander Group's real estate private equity arm. Oberoi Realty, a large Mumbaibased real estate
developer recently announced a deal to buy land in Mumbai from Tata Steel for US$190M.
Singapore based AT Capital Group, headed by Indian businessman Arvind Tiku has also invested in
Experion Holdings Pte Ltd. Singapore. Its India based WOS, Experion Developers which maintains a land
bank of more than 400 acres in India and is progressively developing residential real estate, especially in
the National Capital Region, is bullish on the real estate space in India. This 100% FDI-compliant
company, backed by the Singapore based fund, is currently developing a premium residential project
named Windchants at sector 112 in Gurgaon as well as a group housing project named the
Heartsong in Sector 108, Gurgaon.

Private equity funds in India are in the process of building up portfolios of income-producing real estate
assets as the country prepares to permit listing of REITs. The firms that are either building or planning to
invest in such assets include Redfort Capital, Golden Estates, Kotak Realty Fund and Blackstone Group
along with its developer partners, and Tata Realty and Infrastructure. LIC Housing Finance Ltd, a
subsidiary of life insurance giant Life Insurance Corporation of India (LIC), has made four investments in
mid-income housing projects, putting in Rs 50-70 crore in each transaction from its Rs 530 crore real
estate investment fund that it raised in March of last year.As of May 2014, Brick Eagle, a real estate
investment firm and affordable housing developer, had raised US$25 million of its yearly target of
US$100 million. The firm has so far bought 400 acres of land in Chennai and Greater Mumbai.

As these examples illustrate, theres no reason to believe the Indian real estate sector will not continue
to see investor interest and the bearish tones in the recent past will only give way to a bullish sentiment
with a positive outcome from the impending election results.

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Singapore 049483

Telephone +65 6226 2174