An Indian summer

In 1991, Manmohan Singh, the current prime minister of India, delivered a speech to the Indian parliament laying out his rationale for the economic reforms that were to transform India from a socialist-inspired, centralized economy to a more open, capitalist society.

“No power on earth can stop an idea whose time has come,” he said, quoting the French writer Victor Hugo.

Fifteen years later, it seems that time has arrived.

Singh: his time has come

With the exception of perhaps China, no other country in the world is attracting as much attention from real estate investors as India. Fueled by a rising economy, an emerging middle class and a large and educated English-speaking population, all sectors of India’s real estate market are booming. Multi-national corporations are scouting for office space in Mumbai; hotel developers are rushing to meet the rising demand of business travelers and tourists; and residential investors, driven by an estimated housing shortfall of 20 million units, are constructing huge townships on the outskirts of the country’s major cities.

All of this activity is drawing some of the biggest names in the private equity real estate industry from Apollo Real Estate Advisors to Morgan Stanley to Warburg Pincus, among many others. And given the number of India-focused funds in the pipeline—sister publication Private Equity Real Estate is tracking $4 billion (€3 billion) of funds focused solely on India—many more are on the way.

The opportunities in India’s real estate market seem self-evident: an economy that has grown at an average rate of 7 percent since 1994, a population of more than a billion people, rapidly rising incomes, a government that is opening up its doors to foreign investment and a country badly in need of institutional grade real estate.

The challenges are almost equally apparent: opaque legislation; a limited pool of experienced operators; a lack of infrastructure; significant competition from both foreign and domestic investors; and, perhaps most challenging, a cumbersome regulatory environment. As noted real estate investor Sam Zell, famous for his intolerance to bureaucrats and red tape, told PERE earlier this year: “If you think that we have bureaucracy in this country, you have never seen anything like [India].”

Nevertheless, while India is notorious for its thicket of regulations, real estate

If you think that we have bureaucracy in this country, you have never seen anything like [India]. Sam Zell

investment has been made easier by recent legislative changes. Last February, the Ministry of Finance relaxed restrictions on foreign direct investment, allowing 100 percent FDI in certain sectors of the real estate market, subject to conditions. By the end of the year, there is expected to be €4 billion to €5 billion of foreign direct investment in Indian real estate, according to estimates.

Many of those investors are being drawn to India not just because of its size and scale, but also because it remains one of the most inefficient markets in the world. As Barry Sternlicht, the head of Starwood Capital, said in a recent conference on India, “You can’t get a more imperfect market”—the point being that imperfections and inefficiencies can lead to opportunity and profit.

In the eyes of Sternlicht, and the eyes of many investors flocking to the Indian subcontinent, India’s time has indeed come.

Given all the challenges they face, however, whether or not the same can be said for them remains to be seen.