The Hindu Business Line : `Potential in real estate enormous'

JP Morgan Asset Management - Real Estate will try to partner with quality developers in India, says Mr Arvind F Pahwa, MD. Its India Property Fund, which has just announced closure with about $ 360 million in capital commitments, intends to leverage the growth in demand for real estate in the country. "The potential here is enormous and investors have started eyeing higher returns", he notes. Mr Pawha also dwells on some key aspects of the market, including imminent competition and the view that a correction of sorts is setting in.

Excerpts.

Is there realisation that property prices have spiralled quite substantially and that some form of correction will happen?

Yes, property prices have grown significantly over the last 2 years on account of great demand from actual users in all segments. There are a number of projects under construction and the coming years will see new supply. This will definitely have some rationalisation and stabilisation impact on the rents as well as on capital values. The effect will vary from market to market. Also, the increase in mortgage rates in line with the international trend will have some dampening impact.

Quite a few real estate funds have been set up or are starting operations. How do you see the competition that is building up?

It is true that a number of funds are looking to invest in India's real estate. I see this as a sign of maturity and the faith in the India story. The latter is quite compelling and driven by economic growth. More funds will result in creating high quality supply to meet international standards. Having said that, let me add that the need for capital in this segment is tremendous. With the advent of more funds, there will be a shift in the financing patterns from an un-organized form to a more organized form. The result will be clear - more transparency and maturity. Given this backdrop, funds like ours will seek to leverage our pools of professional talent and expertise. Incidentally, another differentiating factor will be the strength of the teams that the funds have on the ground.

What is your strategy with regard to the property fund's investments? In which areas segments will you be most comfortable?

We will look at partnering with high quality developers on a pan-India basis across all segments. The JP Morgan India Property Fund will invest in a broad range of development projects which are FDI-compliant. It will cover residential, office, retail, warehousing and hospitality sectors. For the developing Indian scenario, there are big opportunities to build quality real estate. This can then be leased and converted into core property with leases in place. The market may well give 20 per cent-plus returns.

The Indian metros are getting considerable attention already from large real estate investors. How about the smaller markets?

Right, our metros have hogged the limelight till now and will continue to do so. But there are several new growth centres too. The emerging ones are drawing the attention of all. I am referring to developers, funds, institutional clients and the like. Remember, this is a huge country with more than 40 cities boasting a population of 1 million plus. These merit serious consideration, in terms of both quality development and capital. Cities such as Chandigarh, Nagpur, Vizag, Mangalore and Kochi are coming up fast and needs special mention.

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