The Hindu Business Line : Realty, the new financial instrument in making

Consider this: GlaxoSmithKline has put its 19.5-acre Mulund plant on the block for reported valuation of Rs 75 crore - Rs 80 crore. Wyeth Ltd, the Indian arm of the US drug manufacturer has put up the Mumbai office of erstwhile Geoffrey Manners for Rs 15 crore, Wyeth having sold its Ghatkopar plant to the Runwal Group for about Rs 60 crore some time ago.

At the other end of the spectrum was the classic case of Mafatlal Industries selling its 500-acre NOCIL facility in Navi Mumbai to Reliance Industries Ltd for a consideration of Rs 800 crore as part of a debt restructuring exercise. And there could be more in the offing. The Bombay Dyeing group with over 1,200 acres at its disposal is reported to be aggressively looking at realty to shore up its financials .

Not that Mumbai is the only happening place when it comes to major deals on the realty front. Arvind Mills is one entity that has leveraged on its real estate to pare its debt portfolio by over Rs 75 crore. But it is down south in Bangalore that some of the biggest deals in this sector are in the making with the likes of Keppel Land, Singapore, joining hands with Purvanka Projects for a Rs 60-crore real estate acquisition. The biggest one till date has come in the shape of the Royal Garden City — a $2.9-billion FDI from Royal Indian Raj International, Canada.

And it was only recently that SEBI granted approval to Fire Capital to start operations as the country's first venture capital fund for real estate. The fund proposes a corpus of Rs 200 crore to be raised from within India and will have a parallel foreign fund with a target size of $30 million.

Clearly, the next big thing that is waiting to happen in the financial sector is funds earmarked exclusively for real estate. Property funds or mutual funds for the property sector are set to evolve in the country over the next couple of months, according to some of the global players who have been watching this sector from the wings for quite a while.

Talking to Business Line, Mr Chanakya Chakravarti, Joint Managing Director, Cushman & Wakefield (India), said, "Private equity fund managers specialising in property from the US, the UK and continental Europe are seriously considering India as an investment opportunity in the emerging markets segment. The Indian property sector is being considered a safe bet vis-a-vis destinations such as Brazil and even Russia."

Thus, CapitalLand, Singapore, Morgan Stanley and Citi Group are some of the names that are understood to be actively looking at realty-related investment opportunities in India. Behind the scenes action where identification of creation of investor-grade portfolios by these potential fund managers has been on for a while, he said.

Even as some of the domestic players such as Kotak Mahindra, ICICI and HDFC have already indicated their interest in spinning off property funds, one is still not sure as to how these funds would eventually operate. The one model available is that of Real Estate Investment Trusts (REITs) across the globe wherein the trust or corporation is a traded company that owns and manages real estate and the small investor gets to purchase its shares on the stock exchange.

Surely, fixing entry and exit prices for units on such ventures may be slightly more difficult, especially in the Indian context. And that may be the one reason these funds are yet to take off in India, despite rising levels of interest from within the country and from across the globe.

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Realty, the new financial instrument in making