India catches the eye of Asian developers

Article by Sparsh Sharma
Asian investor businessman in black cab
Image credit: Shutterstock

After the move by the Indian government to allow 100 percent foreign direct investment (FDI)  into its real estate industry, it was only a matter of time before foreign developers made big investment announcements.

China is currently leading the charge. One of its most prominent developers, Dalian Wanda Group, signed a memorandum of understanding (MoU) earlier this year with the northern state of Haryana to develop ‘Wanda Industrial New City’, an industrial park that will house companies from various sectors, such as software, automotive manufacturing, machinery, health care, education.

The investment of US$ 10 billion, phased out over the next decade, is a very significant outlay by any Chinese company in India and among the biggest investments in the residential and retail asset classes by a foreign developer.

Other Chinese developers are also interested in India and most likely to follow suit. A MoU signed between China Fortune Land Development Company Private Limited (CFLD) and Haryana state will develop large format industrial parks.  Another well-known Chinese construction company, Gezhouba, has in-principle agreed to invest INR 10,000 crore ($149,000) in irrigation projects in Telangana state.

“It would be interesting to see if larger deals are signed in 2016. With China experiencing a slowdown in their own economy, the developers there will get an opportunity to benefit from India’s growth story. The Wanda investment will be one of its biggest, so far. It is also bigger than most deals that other Chinese companies investing abroad carried out in 2015,” says Anuj Puri – Chairman & Country Head at JLL India.

A new land of opportunity

As the Indian market opens up, increased participation by foreign developers is expected to help drive quality projects, benefitting end-users while creating opportunities for Indian investors.

Shobhit Agarwal, Managing Director – Capital Markets & International Director at JLL India, says: “After Narendra Modi became India’s prime minister, the outlook towards the country has turned positive. Funds and players across the world are looking more confidently at investing in India. Chinese developers, in particular, are keen to explore strategic partnership and enter into joint ventures with their Indian counterparts. There is likely to be an inflow of at least USD 3-4 billion in investments from China into the Indian real estate market over the next three years.

“Foreign developers are also going to look at partnering with their Indian counterparts. Interestingly, large residential projects are of particular interest to other Chinese developers. It remains to be seen if commercial asset class also gets on their radar in the near future,” he adds.

Private equity fast on the scene

Private equity funds heading to India could help developers currently facing a fund crunch to get some much-needed liquidity. Foreign funds are specifically looking for distressed projects. According to a news report in Mint, such buyers are flocking to India, lured by the prospect of acquiring property at deep discounts from down-and-out developers.

It’s not the first time private equity has dived into Indian real estate. In 2007 private equity investment peaked at $8 billion when investors lured by India’s economic growth drove property prices to records.

Now, some of the biggest names in global investing have either invested huge sums into realty projects or are in the process of doing so. “Players such as Blackstone and Brookfield are significantly increasing their activity in India whereas others, which do not have a presence here, are either coming in or are studying the market in order to enter soon. Not only debt and equity but also pension funds are considering Indian real estate as investment opportunities now,” says Ashutosh Limaye, Head of Research & REIS at JLL India.

Indeed, institutional investors’ interest in Indian real estate, particularly commercial segment, is growing and sovereign funds, pension funds and large public institutions have been entering the country through acquisition of these properties, according to a report in the Economic Times.

Global investors including Blackstone Group, Singapore’s sovereign fund GIC, Canada Pension Plan Investment Board, Goldman Sachs and Qatar Investment Authority have already been investing in Indian realty assets for the last few years.

Interest grows from Japan

It’s not just the Chinese making inroads into Indian real estate; Japanese developers are also keen to explore strategic partnerships/ joint ventures with Indian builders, according to Agarwal. Unlike the Chinese, however, they are particularly interested in industrial projects.

A likely investment of at least $2 billion is expected to flow into the Indian real estate market from Japan over the next three years, he says.

For all the foreign firms who have been quick off the mark to invest in India, others are watching closely from the sidelines as the country’s star rises both in Asia and the wider world.

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