Foreign players step up realty investment

Vinod Behl

As the Indian real estate market gets on way to becoming a well-regulated and transparent with ease of doing business, following far reaching reforms like Real estate Regulation Act (RERA), REITs, FDI and GST, undertaken by the government, foreign developers and investors have regained their confidence and revived their interest in the India story to invest in residential and commercial property.

Tama Home, a leading developer of Japan, in partnership with Singapore-headquartered Developer Group, has forayed into India, with a recently launched gated residential project — Westwind in Chennai. The project will come up over 6.84 acre in Poonamalla, in the western periphery of Chennai. The Group has made public, its plans to invest Rs 6,000 crore to develop over a dozen projects in five years . Tama Home President and Chief Executive, Yasuhiro Tamaki is bullish about India, especially with the stable and reform-oriented government and wants to repeat the Suzuki story in the Indian real estate  by bringing in best of design and construction technology. According to Tamaki, besides building around 10,000 homes in the affordable and mid segment, the group has plans to take up smart city  and hospitality projects.

It’s not just Japanese & Singopore groups, even Chinese developers are showing keen interest to invest in the Indian real estate. 

A leading Chinese developer, Dalian Wanda Group has committed to invest $10billion in an industrial park in Sonepat (Haryana) in the high potential NCR. The company had signed an agreement with  Haryana State Industrial & Infrastructure Development Corporation (HSIIDC) for the township that will cover 13 sq km in the first phase. 

US major, Trump Corporation is also very bullish about its India plans, post reforms over the last two years. According to Donald Trump Junior, the group is chalking out ambitious plans to expand its footprint in India through branded residential and commercial  office projects. The company that  already has two projects in India- one in Mumbai in tie up with Lodha Group and another in Pune in tie up with Panchsheel Group, has recently announced its first commercial project in Gurgaon and more announcements about newer projects are in the offing.

A boost for commercial projects

It’s not just residential real estate, the foreign developers and investors are showing interest in  commercial office and retail realty as well. Says Vineet Relia, MD, South Asia Real Estate, a fund-turned-developer, “As economic and political uncertainties continue to prevail in the emerged economies, the emerging economies in general and India in particular(with 7.6 per cent GDP growth), has emerged as safer heaven for long- term investments. And global investors of all hues are making selective investments in India’s real estate market, either directly or through joint ventures”.

India’s commercial office market has turned attractive for foreign investors, especially after the recent relaxations in REIT law, to allow investments in under- construction assets. As REITs are expected to take off next year, REIT market in India, according to JLL study, is likely to overtake other established Asia- Pacific markets, with 116 msf of A grade office space, valued at $ 18 billion to be listed by 2019.

It is in this backdrop that  even companies like Singapore-based Ascendas- Singbridge Group is now enthused by the pace of reforms and is actively working on expansion plans. 

The group that has existing office portfolio of 10 msf , plans to develop 11 msf of commercial office space across different cities over next few years. 

According to Sanjay Dutt, the group’s strategy is to expand by way of acquiring non-risky ready and nearing completion assets, in addition to forging joint development partnerships. In view of the immense opportunities thrown up by GST in the warehousing and logistics, the group is also eyeing this space, in addition to industrial parks and townships.

Besides Singapore- based Ascendas,     GIC, the sovereign wealth fund of Singapore government, has also stepped up its investments. It has acquired Mumbai- based BSE- listed company, Nirlon that owned IT park. It also bought 50 per cent stake in Mumbai-based Sheth Developer's Mall.

Earlier this year, Blackstone Group had invested in  Bengaluru-based Salarpuria Sattva Group's office park project in Hyderabad.

Giving retail a fund high

Post FDI relaxations, retail real estate is also looking up and global players are investing in this space. 

Dubai-based Lulu Group has made public its plans to invest Rs 7,000 crore in setting up malls and hotels in India. The first mall-cum- convention centre will come up in Lucknow, followed by retail and hospitality projects in Kerala, Uttar Pradesh and Telangana. According to Yusuff Ali, head of Lulu Group, following FDI reforms in key sectors including retail, India has emerged as an attractive investment destination that may well attract investment of $150 billion from Gulf countries into retail, tourism, manufacturing sectors in the next few years.

The $2 billion Japanese retailer Muji is betting big on India with plans to open retail stores across the country. Muji had some time back entered into a tie- up with Reliance Brands and has recently opened its first store in Mumbai, to be followed by a store in Bengaluru later  this year.

According to Shobhit Agarwal, MD, Capital Markets & International Director, JLL India, liberalisation of FDI policy in the backdrop of economic and political stability, is working out in favour of retail real estate, especially with quality mall space with pre- commitments. He says that in the first five months of 2016, PE investments into Indian retail stood at $10 billion and is estimated to surpass previous high of 2008.

Amidst slowdown,  valuable stressed assets have attracted the attention of global investors. Canada Pension Plan Investment Board (CPPIB) has made significant investments in real estate out of its investment portfolio of $3 billion. It had formed a strategic alliance with Piramal Enterprises to set up a $ 500 million real estate finance company in India to offer debt financing to residential projects. 

China Fortune Land Development (CFLD) has inked a jv agreement with HSIIDC to develop 1500 acre industrial township spread across Sohna and Manesar. The township is to be developed at a cost of  Rs 33,595 crore and the Chinese company will develop residential, commercial projects along with industrial units and related infrastructure facilities. GIC which has emerged as one of the largest investors in India, has formed a jv with DLF Home Developers to invest $ 300 million to develop two residential projects in Delhi. 

GIC is also in race to buy the entire 40 per cent stake of DLF promoters in the office rental arm — DLF Cyber City Developers Limited (DCCDL) Earlier, the company had entered into a jv contract with Delhi's Vatika Group to develop residential projects in Gurgaon and Bengaluru's Brigade Group to invest in qa residential project. GIC's sister company, Temasek Holdings that bought stakes in Oberoi Realty, is evaluating its plans to invest in real estate assets in India. Then there is Germany's Steigenberger Group that has tied up with NCR- based MBD group to develop 20 luxurious hotels across key cities . 

In a latest development, Macquarie Infrastructure & Real Assets (MIRA) is set to finalise its jv partnership with Tata Housing. 

PE funding increases

In this exciting backdrop,  global PE funds are showing more muscle to invest in Indian real estate. According to Venture  Intelligence, PE-owned real estate funds invested $5 billion in India in 2015, the highest since 2008 financial crisis. The increasing interest of foreign PE players in Indian realty, can be gauged from  the fact that during H1, 2016, PE funds have invested about $954 million in real estate projects. More recently, there was a $150 million commercial property deal with Sheth Developers and $275 million residential property deal of APG Asset Management with Godrej Properties.

Keeping in view the long- term viability of Indian real estate amidst ongoing reforms, aimed at healthy and sustainable growth of real estate, global PE players, enthused by India's long-term consumption story, are expected to invest more aggressively in coming years. As Vineet Relia of SARE sums up, “With major realty reforms being implemented and the landmark GST Amendment  Bill cleared by the Parliament, foreign developers and investors are  getting confident about the increasing ease of doing business and securing robust returns on investment in the long run in India”.