Real potential in Indian construction

Despite the poor planning and building problems surrounding the start of the Commonwealth Games in Delhi, investors remain keen to increase exposure to Asian real estate.

Research from Cushman & Wakefield shows a huge demand for new housing in India, with more than 7.5m new units needed to be delivered by 2013. With architects, engineers and builders returning home after the recent collapse of property values in Dubai, some investment companies are seeing an opportunity to step up marketing of funds investing in their developments.

One prominent player in this sector is Hirco, an investment fund listed on AIM, the international market on London Stock Exchange for smaller, growing companies. The fund invests with Hiranandani, the country’s largest developer of high-end mixed use townships, aimed at India’s growing and increasingly affluent middle class.

While Hiranandani’s builders plan to deliver units with copper plumbing, double walls and advanced sewage recycling, Aniruddha Joshi, Hirco Group’s executive director, is conscious of the criticisms which plagued luxury developments built for athletes prior to the Delhi games. “Investors and consumers are sophisticated enough to understand that the Commonwealth Games is not representative of how projects are handled in India,” he says.

“While India still has its infrastructure problems, the government has made clear its commitments to addressing this, and property companies like Hirco are playing their part. We continue to see robust interest in Indian property from both investors and end-users.”

Family offices are one target market of Hirco and another key client segments is Indian expatriates in Hong Kong, Singapore, the Middle East, US and London. “There are people of Indian origin, from the CEO of Citibank downwards, holding particularly responsible positions in the financial services industry,” he says. “The comfort they feel colours their attitude toward investing in India, though not necessarily positively. But if you look at markets of growth to an Indian investor, the domestic market is much more attractive than overseas.”

Hirco was the largest ever real estate offering to debut on the London market when floated at the end of 2006. And Indian property prices are now back to 60 per cent of heady pre-crisis days. Mr Joshi talks about a 25m unit shortage of housing in India as a whole and there is much discussion about a deficit of accommodation for business travelers and tourists. “Some statistics claim there are less hotel rooms in the whole of India than the city of New York,” he says, adding that traditionally in India, hotel accommodation was divided between “expenses-paid establishments and cheap dives,” with the lower budget business traveler not catered for.

Travelling patients, including so-called “medical tourists” needing to stay close to hospitals for healthcare reasons, are also boosting demand.

The thinking behind the new concept of “integrated townships” is to reduce the pressure of migration on transport and infrastructure, built up by population moves from countryside to city centres, by constructing accommodation, shopping and entertainment facilities, together with industrial headquarters. There are currently two such townships under construction in which Hirco invests, one at Chennai, formerly Madras, in the state of Tamil Nadu, the other at Panvel on the outskirts of Mumbai. Both sites will have a mixture of low-rise buildings and towers of up to 27 floors.

“Cities are struggling under the pressure,” says Mr Joshi. “Prices are escalating in city areas and it has become very difficult to create large tracts of development. We have created Greenfield sites, where we can build infrastructure, homes and offices according to a single masterplan and still keep prices affordable.”

Apartments are being delivered every month in the Chennai development, eventually expected to house 50,000 residents. But there are major problems for vehicles investing in Indian real estate, with as much as 90 per cent of land having no clear title, making the securing of mortgages difficult. Then there is the legendary red tape and bureaucracy, plus poor infrastructure.

“Almost everywhere in the world, builders use hollow, lightweight 20m-long concrete slabs,” says Mr Joshi. “In India you can’t use these, as the roads are so bad, they are smashed to pieces by the time they reach the destination.”

Aniruddha Joshi, Hirco