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Foreign firms want a piece of India’s realty market

June, 2016

Mumbai/Bengaluru: Foreign property developers and investors are once again looking at India to invest in and co-develop real estate projects, relying heavily on government support and a more focused strategy.

In recent months, government delegations and companies from Japan, China and Korea have visited India to discuss project proposals with local developers and governments. A few have already signed up with state governments for large-scale developments.

The intent is clear, with most of them looking to sign up for long-term and large-format projects, even though the real estate sector is yet to emerge from a three-year slowdown.

Industrial parks seem to be the priority of large Chinese firms such as Dalian Wanda Group and China Fortune Land Development Co. Ltd, which have already signed in-principle agreements with the Haryana government. For instance, Wanda has committed to invest $10 billion to build a 13 sq. km industrial park.

This isn’t the first time that overseas developers and investors are dabbling in Indian real estate. In the boom years of 2005-06, a number of Dubai-based firms came to set up business in India, followed by a wave of Israeli developers who thought they could replicate their Eastern European success story in the country.

Over the last couple of years, some of the Israeli firms have exited, selling off their projects to local developers or shelving them altogether.

In April, Tokyo-based conglomerate Sumitomo Corporation partnered with local firm Krishna Group to build around 5,000 condominiums in Gurgaon, with an investment of 200 billion yen (around $1.8 billion). The joint venture (JV) company has bought land and construction is expected to begin soon.

“The JV company is taking all the necessary steps such as buying land and applying for approval from the government, and we will bring contractors and architecture to build these condominiums,” Masahiro Narikiyo, chairman and managing director, Sumitomo Corp. India, said over the phone.

He said the company is in India for the long haul and is not concerned about the current slowdown in Indian real estate.

“India needs a lot of residential houses, particularly high-rise complexes. It is natural to assume that more money will come into this country. A lot of people abroad have started living here and are looking for quality living. Secondly, the middle-class population with far more dispensable income will keep growing. We also see a lot of improvement in terms of the country becoming more business-friendly,” Narikiyo said.

Last year, the company formed a joint venture with Mahindra World City Developers Ltd, a unit of the Mahindra Group, to develop a 300-acre industrial park in north Chennai. The venture is investing nearly Rs.400 crore in the project which it plans to launch early in the next fiscal year.

“Policy changes like the enactment of the Real Estate (Regulation and Development) Act has given foreign investors a lot of confidence that there will be transparency regarding the money that they will receive from buyers. They are a lot more energized and willing to take risks. These companies are mostly looking for partnerships either with the government or with a reputed Indian developer who has the ability to work in the Indian environment,” said Anuj Puri, chairman and country head, JLL India, a property consultant.

Mumbai-based realty firm Housing Development and Infrastructure Ltd (HDIL) has been in talks with a large Chinese firm which has built industrial cities back home, and is now exploring possibilities of doing so here.

“The challenge is firms like these are looking for 1,000-acre land parcels, which is not very easy to source here,” said a person familiar with the development, who didn’t wish to be named.

US-based mall developer J.J. Gumberg, which entered India in 2008 with an ambitious plan to set up around 25 malls across the country in 15 years, has built one mall in Mohali. It is currently in the process of acquiring around 37 acres of land in Hyderabad for around Rs.400 crore, for which the due diligence process is almost complete.

“While we are open to joint development or tying up with somebody who has land, the land holdings are relatively small here. You don’t get single entities which hold 20-30 acres of land. Our model is that of setting up a regional entertainment destination. We don’t do stand-alone downtown malls,” said a company executive on condition of anonymity.

Gumberg’s businesses in India are run by Gurgaon-based Gumberg India Pvt. Ltd, a 100% subsidiary of the US-based company.

In Hyderabad, Gumberg plans to set up a mall with a large entertainment centre and wants to bring in financial partners for setting up the project. The company earlier signed up with Sun Apollo Real Estate Private Equity Fund as financial partner for its Mohali project.

“The promoters believe that India is a potential market but it’s obviously tough to do business here. But once you pass those difficult phases, rolling out thereafter becomes easy,” the company executive said.

Others such as Hines India Real Estate, the local arm of US-based realty firm Hines, and Singapore-based Ascendas have been slowly and steadily building up a portfolio of projects in the country.

Last week, a 20-member Korean delegation comprising 11 companies visited Mahindra World City industrial parks in Jaipur and Chennai. The delegation was on a week- long tour of India to explore investment and partnership opportunities.

“We are happy to see a planned integrated business city like Mahindra World City and we believe this will be a great investment opportunity for companies from Korea. We may also consider investing in it for our project in India,” said Dong Hoon Lee, management team, business strategy, Bujeon Electronics, in a statement.

“The good thing this time around is that they have a clear strategy in place and are looking at the government to give them land. In some cases, they want to forge private partnerships. Unlike earlier, most want to do large projects such as industrial parks and townships, which indicate these are long-term, serious plans,” said Mudassir Zaidi, national director, residential, Knight Frank India, a property consultant.


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