A real-estate firm backed by wealthy investors from the U.S., Germany and Israel is stepping into India, joining a growing number of overseas firms making cautious moves into the country this year.
Boston-based Taurus Investment Holdings LLC plans to invest $200 million over three years into developing offices, shops and a hotel on about 20 acres of land in the southwestern state of Kerala. Taurus development would expand an existing business park that already is home to more than 40,000 employees at nearly 300 technology firms, including Infosys Ltd. and Oracle India Pvt. Ltd.
Foreign investor appetite for India property has continued to grow since Prime Minister Narendra Modi was elected earlier this year. His government is aiming to make business-friendly changes aimed at boosting the economy, which in turn could drive demand for homes, offices, and retail shopping centers.
Some of his plan has been delayed by opposition protests in Parliament. But in recent weeks, Mr. Modi’s cabinet has pushed ahead with his economic agenda through the use of executive orders. Earlier this week, for example, an order was announced that was designed to make it easier for developers to acquire land for industrial projects.
Some investors have bet on change already. Foreign direct investment into India totaled $14.1 billion from April to August, a 33.5% increase from the same period a year before, according to Moody’s Investors Service. In real estate, nearly $1.6 billion in deals involving foreign investors have been completed this year, compared with $575 million in 2013, according to data from Real Capital Analytics.
International investors were badly burned in the Indian property market during the global financial crisis, and foreign investment into the sector remains small. Just 20 firms—including groups from Canada, Qatar, and South Korea—have invested there in the past two years, according to data from Real Capital Analytics. U.S. private-equity firm Blackstone Group LP, the biggest investor on that list, has invested $859 million in nine properties. The firm has $80 billion of real-estate assets under management.
Caution is warranted. After new laws designed to ease the path for foreign investors were passed in 2005, investment flooded in. The financial crisis reversed the trend and some of the foreign investors suffered losses.
The market recovered, albeit slowly. Taurus has spent four years setting up its business in India, which included working with local government officials. An initial investment of $15 million will be committed early next year to the $200 million project, called Taurus Downtown Technopark.
The complexity of the deal, and the pace of investment, reflects the risks for foreign firms looking to compete in India, said Lorenz Reibling, chairman of Taurus. “We have significant concerns about India as a whole, despite Modi trying his best to turn the ocean liner around,” he said. “The main risk is the perception of what can be done is different than what will be done.
“Good opportunities are there, but you have to spend the time,” Mr. Reibling said. “We worked closely with the local government to be certain that this is one of those [opportunities]”.
Foreign investors facing low yields in bond markets throughout the world increasingly are looking to places like India to achieve their return objectives. And broad global demographic trends—such as urbanization, the power shift to the East from West, and the rise of a global middle class—are something real-estate investors “can’t afford to ignore,” said Mike Sales, managing director at U.K.-based TIAA Henderson Real Estate. The firm manages about $25.5 billion of assets in Asia and Europe.
A report from TIAA Henderson indicates the percentage of income that people in Asia save rather than spend is expected to vastly outstrip Western countries by 2030, with China and India at 35% and 22%, respectively, compared with the 6% in the U.S. and 5% in the U.K. If that savings is eventually converted to spending power, it could result in a boost for retail and residential investors.
Over five years, Taurus plans to create a $500 million portfolio of commercial and residential property assets, mainly in southern India. The firm currently invests in mostly U.S. and European developments with funding procured from high-net-worth individuals.
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