Chinese PF money may find way to Indian realty

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MUMBAI: One really doesn’t know how Indian security agencies will react to this. Sources in the Indian real estate sector say the Chinese government is planning to invest part of the corpus from its state-run provident and social security funds in the Indian realty sector to maximise gains from one of the fastest growing markets in the world. Although the sources were vague on the exact size of investment that could likely find their way into Indian real estate, it is estimated that China has over 3 trillion yuan in social security funds that covers pensions, unemployment insurance, medical care and work injury compensation. Beijing is learnt to have asked three leading fund managers to scout for possible markets and sectors to invest its money and India is one of the shortlisted countries. The move assumes significance as the Indian government had recently expressed its reservations on Chinese investment in the local shipping and telecom sectors. Chinese investment in the development of Kerala’s Vizhinjam port has been delayed, while a similar case of feet dragging has also been witnessed in the telecom sector. Efforts by China’s telecom companies Huawei and ZTE to partner state-run BSNL’s expansion plans have also been much delayed due to inaction. “Smart money is looking for returns globally and it is no exception that money from China is likely to be invested in Indian real estate,” said a senior executive with one of India’s leading realty companies. “In real estate, most of the funds being invested is from the pension sector which is long term; hedge fund money is typically short term. But many Indian companies didn’t expect China to come in this field,” he added. Industry sources say the reason for China’s interest in Indian real estate is the fast rate of returns, about 15% to 20%, which is higher than most similar markets across the globe. In fact, the internal rate of return from retail projects is about 25%. Guru Ramakrishnan, founding partner of Old Lane, a US-based investment fund, said: “Structural supply and demand imbalances are the key factors driving the continued march up in Indian real estate prices. There is a shortfall of over 350 million square feet of commercial space for India’s services businesses between now and 2010, and a deficit of 19 million units in the residential segment.”

Old Lane recently floated an India-dedicated real estate fund with a corpus of more than $500 million. While the overall real estate sector has seen a rise in demand, there is growing interest in Indian retail. Mumbai-based brokerage firm SSKI Research expects organised retail to reach a market size of $35 billion by 2010 requiring retail space of about 212 million square feet. It is not the only time that global funds have been queuing up for India. Recent reports suggest that foreign investors have been shying away from traditional markets such as South Korea and going towards emerging markets such as Taiwan, Russia, China and India.