Notwithstanding the tightening of interest rates and raising of the risk factor by the banking regulator, the real estate market in India continues to grow at the rate of 30% per annum. The Indian real estate market is estimated to expand by more than three times to touch $60 billion by 2010 from the present $16 billion.  India has an existing demand-supply gap of more than 24 million units, attracting companies from across the globe to invest in the country.

The growth in this sector is propelled by rising share of foreign direct investment (FDI) in the sector. The share of real estate sector in the total FDI stood at $8 billion moving up to about 26%, up by 10% percentage point in 2006-07 from 16% in 2005-06, according to a recent study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), highest body of the Chambers of Commerce of India. The share of foreign investments is expected to reach in the range of $25 billion - $28 billion out of the total market size of $60 billion by 2010.

Prominent international investors such as Royal Indian Raj International Corpn, an India focused U.S. based real estate company; Blackstone Group LP, New York-based private equity and investment management firm; Goldman Sachs Group Inc, one of the world's largest global investment banks; Emmar Properties, the Dubai-based public joint stock company and world’s largest real estate company; Nakheel Properties, a real estate developer in Dubai; Deyaar, the real estate arm of Dubai Islamic Bank; Pegasus Realty LLC, a leading Dubai-based realty firm; Citigroup Property Investors, the real estate investment management business of Citigroup; the Singapore-based Lee Kim Tah Holdings Ltd; Salim Group, Indonesia's big­gest conglomerate; Morgan Stanley, U.S.-based global financial services firm; and GE Commercial Finance Real Estate, one of six major operating divisions of General Electric Company are showing keen interest and establishing their presence in the domestic real estate business.

General Electric (GE), the world’s second largest company by market capitalisation, is stepping up its real estate financing in India with a corpus of $2 billion (Rs.8,100 crore). It will offer private equity or debt for all type of real estate projects including infrastructure projects such as townships, special economic zones (SEZs), information technology (IT) parks, as well as retail and residential. It will invest in equity of real estate developers or form joint ventures with investment sizes ranging from $10 million to $100 million.

Trinity Capital LLC, the New York-based real estate investment fund, has planned an investment of $10 billion in India for developing 3 satellite cities on the outskirts of Mumbai, India’s financial capital; New Delhi, the country’s national capital and Bangalore, capital city of the south Indian state of Karnataka. The total investment might go up to $12 billion. Trinity has earmarked an investment of $2 billion-$4 billion for each of the townships, which will spread in more than 1,000 acre space. Trinity has also chalked out a plan for investing $2.5 billion for building about 10,000 hotel rooms in India during the next five years. It has signed agreements with global hotel chains namely, Le Royal Meridien, part of U.S.-based Starwood Hotels & Resorts Worldwide, Inc.; Hyatt-Chicago, Illinois based international hospitality brand within the Global Hyatt Corporation and U.K.-based Intercontinental Groups to manage its properties.

Dubai-based Emmar Properties, the world’s largest listed real estate developer, has joined hands with Delhi-based MGF Developments Ltd for investing in the realty sector here. Delhi-based DLF Ltd, the largest real estate company of India, has formed a 50:50 joint venture with UAE-based real estate firm Nakheel Properties for two mega township projects with an investment of more than $10 billion. The joint venture’s projects will cover a total area of 40,000 acres in the cities of Gurgaon, near Delhi in adjoining state of Haryana; Mumbai, the financial capital and in Pune, a historical city near Mumbai.

Another Indian real estate developer Ansal Properties & Infrastructure Ltd (Ansal API) signed a Memorandum of Understanding (MoU) in May 2007 for an exclusive tie-up with Deyaar Development Company, a developer of gulf region, to develop a mixed-use mega township comprising residential, commercial, institutional and industrial properties in India.

Last year, the Blackstone Group announced an allocation of $1 billion for investments in India. The company will also be raising a dedicated fund for long-term continued investment in India. Goldman Sachs too plans to invest $1 billion in India over the next two years, concentrating on the real estate and infrastructure sectors.

Another Dubai-based group Pegasus Realty will reportedly invest $150.4 million in Pune; Hyderabad, capital city of the Indian state of Andhra Pradesh; Chennai, the capital of the state of Tamil Nadu and Coimbatore, an industrial city in Tamil Nadu through joint ventures. The company has also created a $200 million corpus for the Indian hospitality sector.

Morgan Stanley has reportedly invested $68 million in Mantri Developers Pvt Ltd, a mid-sized construction firm in Bangalore, the IT city of India and capital of the southern state of Karnataka while Merrill Lynch & Co Inc, a U.S. based financial services firm has invested $50 million in Panchsheel Developers, a regional builder. New York-based private equity firm Siachen Capital LLC bought an undisclosed stake for $100 million in Nitesh Estates, a mid-sized Bangalore based real estate developer in India.

Farallon Capital Management LLC, a U.S. hedge fund, and its joint-venture partner, Indiabulls, India’s leading Financial Services and Real Estate company snapped up an 11-acre property in central Mumbai for $54.5 million investment in real estate.

CIG Realty Investors (India) Pvt. Ltd, a company of the founder of Unitech Ltd, a Delhi based real estate company, plans to line up about $100-million for investing in real estate projects. The firm is also planning to create a larger international fund, which might be close to $400 million in size.

Singapore-based Lee Kim Tah Holdings is developing a 100-acre mega township along with commercial complex and related social infrastructure near Mumbai with an investment of $115 million. Jakarta-based Salim Group is to invest more than $100 million in a 309-acre township project in Kolkata, capital city of the east Indian state of West Bengal. This $11 million project will be developed as a joint venture between Salim Group and the Kolkata Municipal Development Authority, responsible for urban management and development of the city of Kolkata. High Point Rendel of U.K., U.S.-Based Edaw Ltd and Kikken Sekkel of Tokyo have teamed up to work on a township development project in the Indian state of Jharkhand.

Malaysian developer IJM Corporation Bhd is working on a township spread across 35 acres in Hyderabad, the capital city of the Indian state of Andhra Pradesh near Hi-tech City. Ho-Hup Construction Company Berhad is coming up with a 125-acre development project at Shamshabad in Hyderabad along with the Andhra Pradesh Housing Board. Tishman Speyer Properties, owner of the New York Times building and Rockefeller Center in New York, formed a joint venture last year with the private-equity arm of ICICI Bank to fund new commercial properties. The joint venture, called TSI Venture Fund, plans to invest about $1 billion in India within the next five years.

Other names from the U.S. and U.K. like Starwood Capital Group, a global real estate investment fund; Hyatt, an international hospitality brand within the Global Hyatt Corporation that operates numerous properties; Paramount Capital Corpn, U.S. based financial advisory firm and New Vernon Capital, a New Jersey-based hedge fund have already invested in hotel chains in India. One of the world’s largest hotel and tourism firms Accor has also announced pan-India investment to the tune of $200 million. For this, it has tied with Delhi-based InterGlob Enterprises. Together, they plan to develop 25 ‘ibis’ brand of economy hotels across India and South Asia over the next 10-12 years. In the hospitality segment DLF has tied up with Hilton group.

The residential property market constitutes almost 75% of the real estate market in India in terms of value. The reasonable interest rates, easy availability of housing finance, high rise in salaries and new job opportunities have given tremendous encouragement to the residential sector in the recent years. The rising interest rates, however, are now putting some pressure on this segment. The demand-supply gap, however, is so acute that the segment might overcome this pressure soon. According to government’s habitat policy, about $800 billion - $900 billion investment is required to remove the housing shortage and achieve the target of everybody having a house of his own.

Office property market in India is also rising fast as the demand for modern office buildings in India is growing. The prices of commercial properties in all the important cities have increased by up to 40%, according to estimates. The requirement for office spaces has been estimated to grown to more than 19 million sq. ft. in 2006-07 from 4 million sq. ft. in 1999-2000. About 75% of the demand in this segment is expected to come from IT & BPO sectors only. The sectors would require 200 million sq. ft. of space in big metros by 2010. 

Organised retailing is also fueling the growth of commercial real estate. The number of malls in Kolkata, Mumbai, Bangalore, New Delhi, Hyderabad and Pune is estimated to grow to about 300 by 2010 as against 50 now. In terms of total area, there was 12.40 million square feet (mln. Sq. ft) of mall space available in these cities.

Special economic zones (SEZs) have also emerged as the new destination for real estate investors. The number of approved SEZs has reached at 267 following the approval of 23 proposals by the Board of Approval on May 31, 2007. Till now, 103 SEZs have been notified by the government and 20 SEZs are already functional. The Board of Approvals has received proposals for more than 300 SEZs apart from those already cleared. About one third of the approved SEZs belong to the IT/ITeS sector.

As far as regulations are concerned, the government has permitted FDI up to 100% under automatic route in townships, housing, built-up infrastructure and construction development projects, subject to certain conditions, which stipulate that the minimum capitalization norm shall be $10 million for a wholly owned subsidiary and $5 million for joint ventures with Indian partner/s. The funds would have to be brought in within six months of commencement of business of the company.