Government allowed 100% FDI under the ‘automatic route’ in order to spur investment in the vital infrastructure sector; Construction companies raised money from capital markets. PSU banks leading the race to extend credit to the realty sector. The sector outperformed market which has witnessed an astronomical appreciation in the market prices of real estate stocksThe real estate market size as of now is estimated to be $12 billion, which is expected to grow at 33% to $50 billion by 2010. There will be about 5 times increase in office space in the next 5 years, 200-million sq ft for organised retail by 2010 and over 50,000 new hotel rooms are going to be added in the next 5 years.

The total foreign direct investment (FDI) inflows into India in fiscal 2006-07 stand at $7.5 billion. Real estate attracted a record FDI worth $3 billion in the first half of 2006. The largest inflow came from the Dubai-based Emaar Group, with the bulk of its $ 850 million investment coming in the first half of 2006.

Morgan Stanley Real Estate has invested $300 crore in Alpha G Corp and the US-based Siachen Capital has bought a stake worth $100 million in the Bangalore-based Nitesh Estates.

There is huge fund chasing real estate in India. For example, Goldman Sachs has a proprietary fund of $10 billion, ICICI India Advantage Fund is of $ 800 million, HDFC Real Estate Fund of $720 million, Pantaloon Group Kshitij Fund of $350 million.

Realty loans

Public sector banks are leading the race to extend credit to the realty sector with their exposure more than doubling in 2005-06. According to the Reserve Bank of India (RBI), lending by PSU banks to the realty sector shot up by 102 per cent to Rs 1,56,903 crore in 2005-06 from Rs 77,313 crore in the previous year. The RBI has classified real estate as a sensitive sector - prone to high volatility and unpredictable movements - along with capital market and commodities.

While most funds were initially floated by financial Institutions or banks such as HDFC, ICICI Bank and Kotak Mahindra Bank, real estate developers like DLF Universal and even retailers such as Pantaloon have now entered the arena for creating more retail facilities. Reports suggest that over the past six months, about $500 million has already flowed into the real estate sector and the flow may rise to a massive $7-8 billion over the next 2 years.

The development of real estate in India revolves on two primary areas: retail and residential. The global real-estate consulting group Knight Frank has ranked India 5th in the list of 30 emerging retail markets and predicted an impressive 20 per cent growth rate for the organised retail segment by 2010. The Indian real estate market is estimated at $12 billion, and will reach $50 billion by 2010. The organised segment is expected to grow from a mere 2 per cent to 20 per cent by the end of the decade. A strong economic growth, favourable demographic changes, fiscal benefits and lower interest rates have helped the industry grow rapidly over the last 2-3 years.

The Government has shown keen interest in developing the sector by relaxing FDI norms, with the industry estimated to grow at 30% annually in 2005. India is to experience a demand supply gap of 17.9 million housing units by 2010. This apart, commercial real estate demand is expected to be around 350 million sq ft, out of which IT/ITES and organised retailing sector should contribute around 300 million sq ft. | Click here for Financial Results |

The boom is also attracting interest from foreign players. Vancouver-based Royal Indian Raj International Corporation (RIRIC) will invest a staggering US$ 2.9 billion in a single real-estate project named Royal Garden City in Bangalore over a period of 10 years. The retail value of the project is estimated at $8.9 billion. Morgan Stanley Real Estate announced that it has invested around $68 million in Mantri Developers Private Ltd, a private Bangalore-based real estate developer.

‘Automatic route’

Driven by positive growth in the economy, real estate in India is booming. The year 2006 started on a promising note when the Government of India opened the construction and development sector in February 2006, and allowed 100 per cent foreign direct investment (FDI) under the ‘automatic route’ in order to spur investment in the vital infrastructure sector.

The relaxation of the FDI ceiling saw big names like Dubai-based Emmar Properties — the largest listed real estate developer in the world — joining hands with the Delhi-based MGF Developments to announce India’s largest FDI in the realty sector amounting to over $500 million in projects having capital outlay of $4 billion.

Groups showing interest in India include insurance company American International Group Inc (AIG), High Point Rendel of the UK, Edaw-US, Japan’s Kikken Sekkel, Lee Kim Tah Holdings and Cesma International from Singapore.

Almost all the sectors have made smart gains in the ongoing bull run of the Indian equity market but things could not have been better for the real estate sector that witnessed an astronomical appreciation in the market prices of its stocks. On the back of strong fundamentals of Indian economy, robust demand, rising property prices, phenomenal corporate earnings and continuous FII pumping, few real estate stocks have appreciated as high as 74,000% and as low as 3000% in the last four years.

Whether one is looking out for one year or four years returns, the real estate sector has outperformed the market convincingly.

Some realty stocks on the basis of their price performance are given under:

Unitech has appreciated in excess of 75,000% in terms of stock price as well as market cap. The market cap in November 2002 was Rs 55 crore and now the market cap is around Rs 41,000 crore. During the same period, price of Arrow Webtex scrip zoomed by over 44000% from Rs 1.35 to Rs 600. BF Utilities’ share gained 41800% from Rs 7 to Rs 2932.95, while Ansal Properties rose by 29,500% from Rs 3.33 to Rs 985.70.

The IPOs of Gayatri Projects, Tantia Constructions, Parsvnath Developers received good response from investors at the time of subscription. There are other companies in the IPO pipeline like DLF, Orbit etc. The IPO of Parsvanath Developers, which planned to raise Rs 1000 crore, received spectacular responses with 62 times over-subscription. Ishaan Real Estate (Raheja Group) raised 180 million pounds on the London Stock Exchange (LSE) and on similar lines Hiranandani Constructions is looking at raising $500-750 millionn via IPO route on LSE.

Source:

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