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Morgan Stanley in 1st Indian deal

Morgan Stanley's real estate investment arm has invested about $68 mn in Indian property developer Mantri Developers.

india Updated: Mar 02, 2006 11:30 IST

Morgan Stanley's real estate investment arm has invested about $68 million in Indian property developer Mantri Developers Private Ltd. in its first foray into the fast-growing market, the firm said on Wednesday.

India eased rules on foreign investment in its property sector early last year, sparking interest from several US funds and firms eager to tap a booming economy where a growing middle class demands new homes, shops and offices.

But many investors have been hesitant, wanting to see others test India's legendary red tape before they take the plunge.

Indian firms are keen for foreign partnerships because they want finance and expertise to expand from their regional bases to become national players.

Mantri, which is based in Bangalore, was founded in 1999 and focuses on residential, office and retail projects, Morgan Stanley said in a statement. The statement didn't specify what size stake Morgan would take.

"India presents an extremely compelling investment story and expect to be a long term investor in the real estate sector," Morgan Stanley's global head of real estate investing, Sonny Kalsi, said.

"The residential market is attractive because of rapid urbanisation, the availability of housing finance and the strong growth of the consumer segment."

Red tape

When India relaxed its rules last year, it allowed foreigners to own property, and dropped the minimum size for housing estates built with foreign capital to 25 acres (10 hectares) from 100 acres (40 hectares). Overseas firms can now put up commercial buildings as long as the projects surpass 50,000 sq metres (538,200 sq ft) of floor space.

The moves opened up a market which, according to the government, needs 100 million new homes each year.

With the economy seen growing 8.1 per cent in the financial year ended March, an estimated 2 million new graduates will leave Indian universities this year, creating demand for 100 million sq ft of office and industrial space.

Among the first to bite have been Singapore developers such as Ascendas, which has business park joint ventures in India, as well as Keppel Land and CapitaLand Ltd.

But US developers, such as privately held Hines, are hot on their heels, choosing India over more developed markets such as Japan and South Korea for their venture into Asia.

Others sniffing around for deals include private equity firms JP Morgan Partners and Warburg Pincus, and structured products company Broadstreet Group.

The investors are braving India's cumbersome bureaucracy: Analysts say India has poor foreclosure laws, property registration processes are tedious and property tax, transaction law and document systems vary from state to state.

Foreign investors must hold Indian property assets for a minimum of three years before repatriating capital. Indian authorities had maintained strict rules on foreign property investment because of concerns over the type of speculative capital flows that led to property bubbles in cities such as Bangkok, Jakarta and Kuala Lumpur in the 1990s.

Morgan Stanley has acquired $73.1 billion of property assets worldwide. In Asia, the bank has concentrated on Japan and China, where it owns 55 percent of a joint venture that bought $340 million of distressed property assets from China Construction Bank.

First Published: Mar 01, 2006 16:48 IST