By Art Patnaude
A real-estate firm backed by wealthy investors from the U.S.,
Germany and Israel is stepping into India, joining a growing number
of overseas firms making cautious moves into the country this
year.
Boston-based Taurus Investment Holdings LLC plans to invest $200
million over three years into developing offices, shops and a hotel
on about 20 acres of land in the southwestern state of Kerala.
Taurus development would expand an existing business park that
already is home to more than 40,000 employees at nearly 300
technology firms, including Infosys Ltd. and Oracle India Pvt.
Ltd.
Foreign investor appetite for India property has continued to
grow since Prime Minister Narendra Modi was elected earlier this
year. His government is aiming to make business-friendly changes
aimed at boosting the economy, which in turn could drive demand for
homes, offices, and retail shopping centers.
Some of his plan has been delayed by opposition protests in
Parliament. But in recent weeks, Mr. Modi's cabinet has pushed
ahead with his economic agenda through the use of executive orders.
Earlier this week, for example, an order was announced that will
make it easier for developers to acquire land for industrial
projects.
Some investors have bet on change already. Foreign direct
investment into India totaled $14.1 billion from April to August, a
33.5% increase from the same period a year before, according to
Moody's Investors Service. In real estate, nearly $1.6 billion in
deals involving foreign investors have been completed this year,
compared with $575 million in 2013, according to data from Real
Capital Analytics.
International investors were badly burned in the Indian property
market during the global financial crisis, and foreign investment
into the sector remains small. Just 20 firms--including groups from
Canada, Qatar, and South Korea--have invested there in the past two
years, according to data from Real Capital Analytics. U.S.
private-equity firm Blackstone Group LP, the biggest investor on
that list, has invested $859 million in nine properties. The firm
has $80 billion of real-estate assets under management.
Caution is warranted. After new laws designed to ease the path
for foreign investors were passed in 2005, investment flooded in.
The financial crisis reversed the trend and some of the foreign
investors suffered losses.
The market recovered, albeit slowly. Taurus has spent four years
setting up its business in India, which included working with local
government officials. An initial investment of $15 million will be
committed early next year to the $200 million project, called
Taurus Downtown Technopark.
The complexity of the deal, and the pace of investment, reflects
the risks for foreign firms looking to compete in India, said
Lorenz Reibling, chairman of Taurus. "We have significant concerns
about India as a whole, despite Modi trying his best to turn the
ocean liner around, " he said. "The main risk is the perception of
what can be done is different than what will be done.
"Good opportunities are there, but you have to spend the time,"
Mr. Reibling said. "We worked closely with the local government to
be certain that this is one of those [opportunities]".
Foreign investors facing low yields in bond markets throughout
the world increasingly are looking to places like India to achieve
their return objectives. And broad global demographic trends--such
as urbanization, the power shift to the East from West, and the
rise of a global middle class--are something real-estate investors
"can't afford to ignore," said Mike Sales, managing director at
U.K.-based TIAA Henderson Real Estate. The firm manages about $25.5
billion of assets in Asia and Europe.
A report from TIAA Henderson indicates the percentage of income
that people in Asia save rather than spend is expected to vastly
outstrip Western countries by 2030, with China and India at 35% and
22%, respectively, compared with the 6% in the U.S. and 5% in the
U.K. If that savings is eventually converted to spending power, it
could result in a boost for retail and residential investors.
Over five years, Taurus plans to create a $500 million portfolio
of commercial and residential property assets, mainly in southern
India. The firm currently invests in mostly U.S. and European
developments with funding procured from high-net-worth
individuals.
Write to Art Patnaude at art.patnaude@wsj.com
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