Real estate and infrastructure in India are the hot picks of the season for private equity players, both global and domestic. Irrespective of talks of a slowdown or a bubble, it is these sectors which are drawing maximum attention from investors.

The latest buzz is De Shaw’s USD 400 million investment in DLF Assets Private Ltd. which will concentrate on setting up Special Economic Zones in Gurgaon, Chennai and Hyderabad. This would be the first hedge fund investment in India.

Real estate in India is awash with funds from global players channelising their finances in integrated townships, hospitality and IT Parks. Citigroup, Goldman Sachs, Morgan Stanley and others are betting on the Indian market for quick and assured rewards.

While Morgan Stanley Real Estate (Asia-Pacific) views Indian property as a hot investment market, Merrill Lynch feels it is grossly undervalued, even at the economy’s brisk 9% growth rate. The latter has a dedicated division for spearheading real estate investments in India.

As against the forecast by Merrill Lynch for India which estimates a USD 90 billion real estate market by 2015, the Associated Chamber of Commerce (Assocham) has projected the domestic construction industry to grow at a rate of 15% to cross USD 120 billion by 2012.

Forecasts aside, the line up of equity players in the Indian real estate market is impressive. DB Realty parted with 5.92% of its shares to Trinity Capital of UK in April, while ICICI Venture is an equal partner of Kolte Patil in 3 of its projects in Pune.

Dawnay Day International, another UK based investment company, committed USD 1.5 billion in Mantri Developers’ Bangalore project in February 2007 and will spend USD 200 million in promoting10-15 hotels over the next 3 years.

Earlier this year, Morgan Stanley set records with its USD 152 million investment in Mumbai-based Oberoi Construction.

As for infrastructure, USD 60 billion is likely to flow into the development of roads by 2010. Airport projects are in for approximately USD 4 billion investment in the next decade. The construction industry, which accounts for 5.2% of the GDP and the second largest employment, is therefore poised for nothing less than an explosion.

The shift in investments from business services to real estate is all but visible, as the gap between investments in the two sectors is narrowing down. As against USD 300 million worth of funding in the former, construction received almost USD 200 million in investments from January 1 to April 30, 2007

For global and domestic private equity players, the going couldnt be better the FDI share in real estate has grown from 16% to 26% within a year. The Government had to step in to regulate this growth with a ban on foreign borrowings by real estate companies in May this year, putting to rest conjecture that there is FDI in real estate, and not real estate in FDI.

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