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By Aseem Shrivastava With the huge influx of foreign capital into Indian realty, real estate might replace IT/BPO as the lead growth story in the Indian economy in the years to come. Are India's farmlands set to become a global casino, asks Aseem Shrivastava
“India is the most exciting real estate market in Asia.”
-- Senior executive at the investment banking firm Goldman Sachs Judging from the recent influx of foreign capital, the Indian real estate market is probably the most exciting, not merely in Asia but in the world. The quadrangular region 20 km to the southeast, across the harbour from Mumbai,is marked in various shades of green on the 1999 Land Use Plan for the Mumbai Metropolitan Region. Lying at the western edge of Raigad district and the northern tip of the Konkan coast, the paddy-growing area has some of the most fertile soil in this part of the world. On the map, most of the area is marked “Green Zone” or “Forest Zone”. However, less than three-quarters of the way into the period (1996-2011) for which the plan has been drawn, the Maharashtra government was quite happy to ignore its own plans and agree to acquire and hand over most of the land – over 6,000 acres – to the rapidly growing real estate and financial concern Indiabulls, which has got clearance to build a multi-product SEZ on the territory. Since last October a powerful resistance movement, 26 Gaon Bachao Sangharsh Samiti, has been gathering force in the Western Ghats to defend the rights to land and livelihood of local farmers (50,000 of whom face outright dispossession – for a public cause). Who owns Indiabulls? Indiabulls is a financial company that was ticked off by SEBI for irregularities a few years ago. It has not stopped the company from becoming the second-largest listed real estate developer in India (DLF is the largest), controlling a land bank of almost 8,000 acres. It is building penthouses and condominiums in Gurgaon, integrated townships in Sonepat, commercial highrises in the heart of Mumbai and of course, the Raigad SEZ (which will have, among other things, industry hubs, convention centres, luxury hotels, shopping malls and entertainment facilities). They say that once the new international airport in Navi Mumbai and the Chunnel across the bay come up, Konkan will be on its way to becoming California – and the most prized real estate anywhere. It has already been satellite-mapped down to the last sapling planted. Promoted by three Indian engineers, Indiabulls is the first Indian company to have brought in foreign direct investment in real estate, since the sector was first opened up in 2005. It has grown rapidly (at 184% p a between 2003-06) and has amassed huge profits (multiplied almost 90 times since 2003). Not surprisingly, it has attracted investment from all over the world. By now, less than three years after its IPO, it has attracted equity investment of over $500 million from abroad. Apart from billionaire Laxmi Mittal, who has substantial investments in the enterprise, stakeholders in Indiabulls include global financial majors like Farallon, Goldman Sachs, Citigroup, Merril Lynch, Morgan Stanley, Lloyd George, Fidelity Funds and one of the investment arms of the Government of Singapore. There is clearly a pot of gold hiding behind the Indiabulls logo – visible across the 95 Indian cities in which they have opened offices. How typical is the Indiabulls story? According to a recent ASSOCHAM report, real estate developers are developing 130 SEZs, constituting nearly 50% of the total area under them. There is big money to be made. Emmar Properties of the UAE, one of the largest real estate developers in the world, is building no less than 10 SEZs across India. The real estate boom in India is best symbolised by the fortunes of Unitech. One of the largest real estate firms in the country, it reported net profits of Rs 452 crore during the third quarter last year, as compared to Rs 13 crore during the corresponding period in the previous year, a 3,190% jump. As one would expect, its share prices sky-rocketed. But how high was the sky? Between March 2004 and December 2006, Unitech’s market capitalisation flew from Rs 324 crore ($ 72 million) to Rs 37,784 crore ($ 8396 million) a jump of 11,561%! In an infrastructure-poor country like India, even a little investment in developing the land fetches a disproportionately high premium in the real estate market. The RBI has thus, understandably, classified loans for SEZ investment as “real estate lending”, requiring higher rates of interest on loans for SEZs. The real estate story may contain the secret to the wealth of Indian billionaires, and why there are more of them in India than in China, which has only recently legalised freehold private property (and whose real estate market is now seen to be saturated). Perhaps therein lies the secret key to the jackpot! Thus, understandably, India is a more popular destination for global finance capital to park and play with its funds than China. In the years to come real estate is likely to replace IT/BPO as the lead growth story in the Indian economy. The reasons are many. First, there is a desperate shortage of housing and commercial space in India. Secondly, Indian developers and builders – the big names are DLF, Ansals, Unitech, Indiabulls, Raheja, Omaxe, Hiranandanis, to name but a few – have accumulated vast sums of capital in recent years. (Some of the richest people in the world are now Indian real estate developers.) Thirdly, overseas investors – especially financial and real estate megacorps in the US and UK – are on the lookout for quick and high returns in India and China (though most analysts expect the Indian real estate market to grow faster than the Chinese one). Fourth, thanks to a great deal of persistent poverty and huge inequalities, the Indian economy is likely to run into a domestic demand constraint in the not-so-distant future, especially as middle class demand gets saturated and consumer debts mature. As this happens, investment is likely to go even more into the financial and real estate sectors (which are fetching annual returns of 20-30% and more). Last but not least, SEZ policy has been designed to not only buffer the risks of industrial investment by allowing large fractions of land (as much as 50%) to be “fallow” for real estate development, but also with the thinly disguised aim of enabling developers to profit, even if industrial investors fail, or fail to invest. According to the ASSOCHAM report, the real estate market in India “is currently growing at 30% per annum and offering maximum returns to investors. The domestic real estate market, which is presently estimated at $ 16 billion (Rs 72,496 billion), will increase by over three-and-a-half times and touch $ 60 billion (Rs 271,860 crore) by 2010.” A forecast by Merrill Lynch concurs that the Indian realty sector will grow from $ 12 billion in 2005 to $ 90 billion by 2015. One way to predict the future is to invent it. For global finance the going couldn’t get better. Huge properties in India can be acquired for what would be dirt to them. And now is the time to buy, when the market is looking up. Foreign direct investment has grown dramatically from $ 5.5 billion to almost $ 16 billion within the last financial year, most of it on account of policies which have prised open the real estate sector. The proportion of real estate in FDI has grown from 16% to 26% within a year. The way things are going, it may turn out in the end that land was acquired from Indian farmers (in the public interest) to allow the casino of global finance to operate more smoothly. What Wall Street invests in India may be a pittance for them. But it is enough to play with the Indian economy and turn the country into a gambling den. It would be interesting to see, after the passage of some years, what proportion of India’s prime land is owned by global financial megacorps, including their Indian offshoots and underlings. It will then be more interesting to observe the share of Indian real estate that is under FDI rather than the share of FDI that is real estate! Welcome back, Western colonialism. InfoChange News & Features, May 2007
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