India real estate business needs to open door to foreign funds

BOMBAY: India needs to lay a foundation for real estate investment trusts (REITs) and allow foreign firms to buy buildings in order to attract funds into its developing property sector, said Asian property developer Ascendas.

Real estate and building sector rules were relaxed last month to allow full foreign direct investment in construction projects, fuelling region-wide interest in the rapidly growing market. Singapore-based Ascendas promotes industrial properties, such as technology parks, across Asia. It said that while foreign direct investment in the construction sector would raise infrastructure standards, REITs would enhance market liquidity.

The group’s Ascendas Real Estate Investment Trust is Singapore’s second-biggest listed property trust with a market capitalisation of $1.5 billion. A string of recent property acquisitions in the city-state has pushed its portfolio size to more than $1.2 billion.

“We hope that the government will also consider opening up the possibility of acquisitions,” said Goh Kok Huat, chief operating officer at Ascendas, in an e-mail interview. “This will lead to greater market liquidity for real estate in India, particularly for commercial real estate.”

The head of India’s biggest housing mortgage lender, Housing Development Finance Co, last year urged the government to permit REITs — listed vehicles, often tax-free, that own a portfolio of buildings and pay dividends from rental profits — to attract more funding.

Outsourcing fuels boom: Limitations on foreign investment and restrictions on bank purchases of property have left India’s real estate market starved of capital, even as global demand for Indian outsourcing businesses fuels a boom in the property sector.

Property consultants expect available office space to rise about 30 percent in 2005 across India’s five biggest cities to about 15 million square feet (1.394 million square metres). Another 10 million square feet of space is spread across more than 200 tier-two cities in India, the world’s second-most populous nation and Asia’s fourth-largest economy.

While accurate data about the size of the real estate sector is hard to come by, analysts say recent reports indicate its share as a percentage of India’s $600-billion economy has risen to around 7 percent from about 5 percent two years ago.

Goh said India, where the company has so far developed 3.6 million square feet of office space, was a key market.

“Ascendas believes India will continue to be an attractive location for more IT outsourced activities, and possibly new industry areas such as the biomedical and healthcare sector. We will be looking at increasing our investments in India.”

He said the company would retain its focus on developing business space for technology and back-office companies. The company has developed business space in India’s southern technology hubs of Hyderabad and Madras as well as the main tech centre of Bangalore, and is now looking to expand into other cities like Pune in the west and Calcutta in the east.

“We have also moved from a one-project presence to a multi-city presence,” Goh said. The company, however, declined to divulge the revenue its Indian operations generate or the percentage they contribute to overall sales. —Reuters

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