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Tuesday, Mar 23, 2004

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Good demand for real estate — HDFC mulls entity to buy, lease properties

Our Bureau

Mumbai , March 22

HOUSING Development Finance Corporation (HDFC) is considering a proposal to set up a separate entity to acquire properties and lease them to large Indian corporates and multinational companies.

According to Mr Deepak Parekh, HDFC Chairman, there is a good potential for this business.

"There is a great demand for real estate from software firms, BPO operators and telecom companies. Normally, they look for properties on four to five years' lease. Builders do not have the capacity to cater to this segment of the market," Mr Parekh said on the sidelines of a seminar on real estate here today.

HDFC cannot directly undertake this business, as there is restriction on the value of property it can own. Therefore, HDFC group is planning to set up a separate entity to undertake this business, he said.

Initially, the new entity would focus on cities such as Mumbai, Pune, Bangalore, Delhi and Chennai where the demand for space is expected to grow.

The company would act similar to a property fund or a Real Estate Investment Trust wherein an institutional mechanism was in place to own and manage properties and also deal with clients, he said.

Earlier, speaking at the seminar, Mr Parekh said the demand for office space in cities is set to grow to approximately 11 million square feet in 2004, nearly twice the 6.4 million square feet developed in 2002.

This $3.6-billion industry will rocket to around $13 billion by the year 2007.

This is mainly due to emerging markets in Asia having become the preferred destination for outsourcing operations of multinationals. "India has a large educated English speaking workforce, which can carry out business process outsourcing services mainly through call centres and technology firms, often at a fifth of the cost in advanced economies," he said.

Prime examples of the spin-off of the ITES industry into the real estate sector are the development of commercial spaces such as Gurgaon, Noida in the north and Malad in Mumbai. These areas have come up as business districts within the city catering specifically to the outsourcing industry, he said.

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