Dominic Whiting, Reuters
Mumbai: Fund manager Trikona Capital is raising a $400 million (Rs1,634 crore) fund to invest in India’s housing boom, but a company executive said fast-climbing land prices meant money-spinning deals would be tough to find.
“It’s very scary, prices are sky-high,” Aditya Bhargava, senior vice president of Trikona unit TCK Advisers, told Reuters on the sidelines of a conference in Mumbai.
“The whole point is you need to have your feet on the ground, find the developer for that locality and the right asset class,” he said. “You can’t parachute in, pick up what you want and walk away.”
The new private equity fund, which will close in the next couple of months, would probably be called Trikona India Real Estate Partners, Bhargava said, and would draw institutional investors, mainly from Europe.
Trikona is also the fund manager for Trinity Capital, a 250 million pound (US$500 million) fund listed on London’s Alternative Investment Market (AIM). Bhargava said Trinity was aiming for internal rates of return of about 25%, and Trikona’s new fund would have roughly the same target.
India’s property sector has been booming since the government eased rules on inward investment in the construction industry in early 2005. Big-name U.S. investors have flocked to the market, including the property investment arms of Citigroup, Morgan Stanley and private developers Tishman Speyer and Hines.
The flurry of development has caused land prices in Mumbai and New Delhi to double in two years. But many investors believe they can still find attractive deals by teaming up with cash-hungry developers in other cities who hope to expand beyond their home base.
Bhargava, who joined Trikona from one of India’s newest banks, Yes Bank, said his focus would switch from major cities such as Mumbai and Hyderabad, to second-tier cities, especially in the state of Gujarat.
“The next step is going after smaller towns,” Bhargava said. “But you have to partner with the right guy because a lot of developers are coming out of the woodwork.”
Building townships, which would draw homebuyers with promises of reliable power and water systems, were a good bet.
“If you rely on the government to develop infrastructure, God help you,” Bhargava said.