India Real Estate: Morgan Stanley, Singapore, III Tier Cities

Weekly news updates on trends in the Indian real estate market

There is increasing interest in India’s real estate market in academic and investment circles. Integrated townships are the latest trend amongst the developers. Investment firms like Morgan Stanley and Credit Suisse have huge plans for real estate investment, especially in Asia.

Chillibreeze Business Research Team

Township plans for prosperity

Intergrated townships are the order of the day.

The states of Maharashtra and Karnataka have formed a policy on integrated townships. 100 per cent FDI is allowed by the centre in integrated townships. Large developers are building self-sufficient integrated townships.

Major Townships on the anvil:

• ICICI Venture and Tishman Speyer’s 50and Nagarjuna Constructions, are developing a 400 acre integrated township at Tellapur, Hyderabad.
• Ozone Group is planning an integrated township on 43 acres in Chennai ,backed by HDFC and Reliance.
• Malaysian property developer Sunway City Berhad has partnered with Hyderabad based Opus Developers & Builders on a Rs 800 crore township on 14 hectares of land near Hitec City in Hyderabad.
• Ansal Properties and Infrastructure has signed an agreement with Abu Dhabi-based investment firm Noor Capital and its advisor, India Realty, for setting up two township projects in Uttar Pradesh, in Agra and Ghaziabad.
• GE Capital signed a deal worth Rs 250 crore with Paranjape Schemes for developing an integrated township project in Pune.
• Fire Capital Fund Mauritius, a global venture capital fund, plans to invest up to $250 million to develop integrated townships in 10 cities. The fund made its first investment in the Indore-based M Jhaveri Group in the 137-acre upcoming township Silver Springs being developed by it.
• DLF is making a foray into Kolkata and is planning expansion into cities like Pune, Bangalore, Chennai and Hyderabad. The company recently launched a Rs 600 crore, 26.3 acre integrated township project in Hyderabad. DLF has entered into an agreement with the Kolkata Metropolitan Development Authority (KMDA) to build a new township in Dankuni, Hooghly district, West Bengal with an investment of Rs 33,000 crore. This would make the Dankuni township the largest public-private-partnership (PPP) project in the country.
• Parsvnath Developers has announced the Parsvnath City in Dharuhera, Haryana, spread over 114 acres. The township will be close to National Highway-8 and strategically situated just 25 km from Gurgaon border.
• Larsen & Toubro and Arun Excello will do a township in Maraimalai Nagar, Chennai. The project, Estancia, will be set up on 78 acres at a cost of Rs 1,500 crore.
• Amanora Park Town project, Pune,
• Shantigram( Adani group), Ahmedabad.
• The Prestige Group is planning a full-fledged township in Whitefield, Bangalore;
• Ceylinco Shriram will be investing approximately Rs 120 crore for an integrated township on 100 acres of land along the Old Madras Road.

July 14, 2007
Source: Business Standard

$8b Morgan Stanley fund eyes India property

Morgan Stanley Group Inc. has raised the largest global property fund in history - an $8 billion, Morgan Stanley Real Estate Fund International VI.

The parent company invested $1.6 billion in the fund, and the rest is comprised mainly of equity commitments from institutional and retail investors in North America, Europe, the Middle East and Asia.

The fund will target non-U.S. real estate assets, portfolios and companies. Approximately 60 percent of the fund has been earmarked for Asia. India and China have been allocated 25% of the fund’s total value (about $ 2billion).

Also, Zurich-based financial-services giant Credit Suisse Group is planning a $2.5 billion fund. According to Private Equity Intelligence Ltd., investment banks and private-equity firms are looking to raise a combined $69 billion from more than 100 real-estate funds- the highest in recent times.

July 13, 2007
Source: IndUS Business Journal

How Singapore Is Trumping Mumbai on India REITs

Indian investors need the real- estate investment trust (REIT).
The government on its part is dragging its feet and apprehensive that real-estate business in India is unsuitable for the retail investors because title rights are not clear; transactions are often funded with black money; valuations are suspect. Venture-capital property funds, which are permitted by the Securities and Exchange Board of India, ask for a minimum amount of $500,000 to $1 million from a single investor, limiting their mass appeal.

Industry watchers believe that the risk is necessary for market development. If India delays too long, the retail market in top-quality Indian properties will shift to Singapore.

Crisil Ltd., an Indian credit-rating company, forecasts investment trusts to capture $70 billion of the country's property assets, or 5 percent of the total, by 2010.

July 12, 2007
Source: Bloomberg

Housing Demand to Increase in China and India, Study Says

According to a University of California, Berkeley study the demand for housing in China and India will increase as more people move to urban areas and incomes grow. The study has been done by Ashok Bardhan and Cynthia Kroll of the Fisher Center for Real Estate and Urban Economics at the university's Haas School of Business.

July 11, 2007
Source: Bloomberg

‘Down syndrome’ grips real-estate firms

From DLF to Omaxe, real estate companies are failing to raise amounts they had initially targeted in IPOs.

The possible causal factors are new guidelines from SEBI that lay out how the land reserves of real estate companies can be valued. The companies that want to issue shares, must own the land and must have paid for it, and the land must be capable of doing what they project it to do in the prospectus. A no-development land cannot be marked in the prospectus as land that can be developed as an IT park. Also, interest rates have risen and property prices are expected to scale down.

July 13, 2007
Source: DNA

BPOs enter tier-III cities to cut cost

Domestic companies are setting up their BPO operations in Tier III cities.

Satyam Computer Services and the Jindal Group have BPOs in small towns of Andhra Pradesh (Jallikakinada village, West Godavari) and Karnataka (Torangallu in Bellary), respectively. Bhilwara Scribe operates a BPO in Bhopal.

Jindal Group is expanding to other parts of Karnataka. Byrraju Foundation, the NGO outfit of Satyam Computers is planning to open seven more such BPOs in rural areas of the state. HP and Chida Soft have BPO operations in Kuppam in Andhra Pradesh and Kizhanur village in Tamil Nadu.

July 13, 2007
Source: Business Standard

Rise in construction costs hike villa rates

Every major real estate project — whether residential, commercial or retail—-has registered an increase in rates to the tune of 20-25%, primarily due to a rise in prices of steel, cement, brass, copper and even raw wood.
While rates of steel and cement have risen by 30-40% in the past six months, brass, copper and wood have gone up by 20%.

July 13, 2007
Source: Financial Express

FM launches housing price index as BSE realty index debuts

The National Housing Bank (NHB), the regulator for housing finance companies in the country, has launched the first housing price index called NHB Residex for five cities - Delhi, Mumbai, Bangalore, Kolkata and Bhopal.

The residential index of a city will be a number which will suggest the average value of residential properties at that point of time in the city in comparison to 2001, which has been chosen as the base year. The index will be prepared every six months.

NHB will launch the index for 35 new cities with population over a million (as per the 2001 census) in the next phase.

The move is expected to bring some transparency in real estate transactions.

The Bombay Stock Exchange’s (BSE) has launched an 11-stock realty index.

July 11, 2007
Source: Live mint

Tishman, ICICI Vent JV to raise 2nd realty fund

TSI Ventures, a Tishman Speyer and ICICI Ventures joint venture, may look at raising resources from the overseas markets for setting up a second realty development fund for building office and residential space in India.

TSI Ventures plans to create residential and integrated townships in major cities.

July 10, 2007
Source: Economic Times

MPC Synergy to invest $1 bn in Indian realty

German real estate fund, MPC Synergy plans to invest USD 1 billion in Indian property over the next 18 months. They may not focus on all the top cities.

As of now, it has partnered with Akme projects and will invest over USD 200 million in three residential projects in Ludhiana, Bangalore and Mohali.  MPC expects 15% returns from them.

July 9, 2007
Source: Moneycontrol.com