investments in real estate and Improvement in infrastructure
facilities. The demand for new office space in India has grown
from an estimated 3.9 million sq. ft in 1998 to over 16 million sq.
ft in 2004-05. 70% of the demand for office space in India is driven
by over 7,000 Indian IT and ITES firms and 15% by financial service
providers and the pharmaceutical sector. In 2005 alone, IT/ITES
sector absorbed a total of approx 30 million sq. ft and is estimated
to generate a demand of 150 million sq. ft. of space across major
cities by 2010. This data clearly demonstrates the growth of the
real estate sector in the country. As per utilization, the real estate
space can be classified as Commercial, Office, Hospitality, Retail,
Malls, Multiplexes and Residential.
Real Estate Investment Banking is an approach to real estate
financing - providing the client a host of services including the
structuring of real estate projects, legal advice, operative
management of real estate projects and support in marketing
properties. The banking focus in Real Estate Investment Banking
is on structured financing products and structuring of entire
portfolios. Extending on similar lines is the importance of
syndication that forms the base line of larger-sized transactions.
The increase in transparency and liquidity in the real estate market
in India is attracting international real estate consultants to India.
These consultants offer end to end solutions for their clients’ real
estate needs. These services include strategic consulting to
developers, investors, advisors and lenders seeking assistance
with existing assets, potential acquisitions, new development
projects and properties slated for disposition, feasibility studies,
concept testing, business planning exercises, investment advice,
market research and analysis, demand forecasting, financial
modeling and project structuring exercises, portfolio optimization
and re-engineering strategies, expansion and occupancy, location
and entry, brokerage services, legal documentation review,
valuations etc. Real estate consultants also ensure that the
financing needs of the client are well taken care of by liaising
with banking/non banking institutions and providing them with
investment and structured finance solutions including
securitization and sale & leasebacks, structured finance facilitating
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equity/debt into development projects on behalf of private and
government sector clients, structuring development financing,
public-private partnerships, joint ventures, portfolio transactions
and privatization exercises. With the opening up of the real estate
sector in the country, the construction houses are scaling up the
commercial and residential constructions. An increasing number
of developers are offering IPOs for fund raising.
Emerging Trends
As the land prices in the Tier I cities have always moved upward,
land was regarded as a safe investment which, regardless of how
it was used, would produce capital gains far above the inflation
rate. It was thus common for companies in the manufacturing
and service industries to acquire real estate even though they
themselves were completely unrelated to property rental or real
estate investment, seeking collateral value and tax benefits from
depreciated assets, and expecting unrealized gains to absorb
business risk. Acquisition of real estate as an asset was further
encouraged as part of a diversification strategy in the investment
portfolio of these corporate houses. As these real estate
possessions are classified as fixed assets held for the company’s
own business purposes, it becomes feasible recent moves to
increase real estate liquidity often involve the conversion of
corporate real estate into commercial use. The corporate houses
in India are also demonstrating a shift from ownership to leasing.
With the advent of MNCs into the country, a growing number of
companies no longer see real estate ownership as an absolute
necessity. From the perspective of companies who want to sell
off assets, securitization schemes provide a greater diversity of
alternatives to liquidate real estate. This has been greatly
encouraged by corporate restructuring and a return to focusing
on core competencies. Thus, there seems an opportunity to tap
the corporate houses who have a large corpus of real estate and
are willing to trade this asset for want liquidity.
Lucrative Destination
Major financial institutions such as ICICI, HDFC, IL&FS and Kotak
Mahindra have all launched real estate funds, either as joint
ventures or sole investors. Most institutional funds operate on a