Hong Kong: ING Real Estate plans to make its first investments in India this year and could set up a fund to pour more money into the country in 2008, despite expectations the raging property market will soon stumble.
Robert Lie, Asia head of the world’s biggest property investment firm, said strong interest in Indian property among ING’s clients had prompted the push.
“We believe India will be a very important market and you can clearly see the beginnings,” Lie told Reuters in an interview.
Property investors, especially from the US, have flocked to India since the country eased rules on inward investment in the construction industry in early 2005.
They are attracted by a yearning for new homes among a youthful middle class, whose income is growing at 12%. Besides, an economy growing at over 9% a year is fuelling demand for shopping centres and offices.
But with land prices doubling in major cities over the past two years, interest rates rising and oversupply of apartments and shopping centres in some hot spots, many in the industry believe the property market is set for a price slide of as much as 40%.
Boom time: An economy growing at over 9% a year and a yearning for new homes among a youthful middle class, whose income is growing at 12%, are driving growth in the real-estate sector.
Lie expected some investors would get burnt in India.
“Because of the enthusiasm and longer-term opportunities, some people forget to be realistic in the short-term,” he said. “I expect that the way the market is now, you’ll see winners and losers,” he said. “We’re looking at doing our first deals, but we’ll do them in a careful way.”
Fund management firms, such as Kotak Realty Funds and Trikona Capital, are busy raising funds for Indian property, while Morgan Stanley, Citigroup and privately-held Tishman Speyer head up a group of big US investors in the sector.
Lie declined to give further details of the investments he was planning in India.
But ING would consider setting up an India fund next year along the lines of a $350 million (Rs1,435 crore) “opportunity” fund it is running in China, which invests in joint ventures with local developers to build housing in large provincial cities. “There’s no doubt residential demand will be very huge, so something like what we’re doing in China is very doable in India,” Lie said.
ING Real Estate, a unit of Dutch banking group ING Groep NV with around €68.8 billion ($93.2 billion) of property assets under management, is also raising two funds, each worth $1 billion, for Asian property this year.
A “core” fund to buy shopping centres, and targeting an internal rate of return (IRR) of 10-12%, would make its first closing in a couple of weeks, Lie said.
The second, “value-add” fund, would be marketed in the third quarter of this year with a target IRR of 12-15%.
With global property values surging and rental yields at rock bottom, institutional investors were looking to Asia for an extra kick to improve performance, Lie said.
But many investors are also prepared to take on riskier investments than usual.
“When it comes to product type, we’re already seeing a shift to the value-add or opportunistic space by investors who were traditionally mainly looking for core-type investments,” Lie added.
ING Real Estate was looking to launch more diverse products in Asia, including funds for logistics buildings and health care, and Lie expected Asia to account for around 10% of the firm’s managed assets within four years, from 3.3% now.