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India’s Primary Real Estate plans US$500m fund

(HONG KONG) Indian fund manager Primary Real Estate Advisors is planning to launch a fund worth as much as US$500 million, probably in the second half of this year, but said it will tread carefully as the country’s property boom stutters.

Foreign investors have taken advantage of such funds to rush into property development in India since it eased rules on inward investment in the construction industry in early 2005, sparking rampant land speculation and a near quadrupling in prices.

But despite signs of a slowdown – home sales volumes have fallen by one-fifth in Mumbai and 40 per cent in Bangalore in the last year – the head of Primary Real Estate, Ashwin Ramesh, is convinced that North American and European investors will invest.

‘There are certainly cowboys out there,’ Mr Ramesh said. ‘But our style is more focused for a risk averse environment. We would typically underperform in a raging bull market but overperform in a flattish market.’

Mr Ramesh expected to launch the new fund within six months to a year, and hoped to raise between US$300 million and US$500 million.

‘At the moment there’s interest in North America and London, but we’re in touch with people all over the place,’ he said, adding that he was busy expanding a team that is now investing a US$32 million fund closed in mid- 2007.

Primary Real Estate would aim for internal rates of return of 15-20 per cent, Mr Ramesh said, below the usual 20-25 per cent often advertised by funds in Asia’s up-and-coming property markets of India, China and Vietnam.

Rival India-based funds include Trikona Capital and Kotak Mahindra Investments, while Citigroup Property Investors and Morgan Stanley Real Estate have been at the forefront of a wave of global funds entering the country.

The demographic fundamentals for India’s real estate boom touted by analysts appear compelling for many investors.

But developers have crammed projects into a few cities and certain building types, Mr Ramesh said.

Primary Real Estate, which will team up with developers – ‘high-quality people, that’s our first filter’, Mr Ramesh says – has identified a big township project outside Mumbai and will seek out projects in emerging cities.

 

Source: Reuters (Business Times 21 Feb 08)

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