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Big boys land
- The entry of foreign private equity firms into Calcutta real estate has fuelled hopes of less red tape and better business practices

Infosys and Wipro may be waiting for land but not private equity investors. At least six such companies from the US, the UK and Switzerland have invested in Calcutta-based projects over the past 18 months. So have their Indian counterparts.

They have put in money despite the serpentine red tape that entwines Calcutta: as many as 27 sanctions are still required before a real estate project can break ground in the city.

What does the thrust mean for Calcutta’s prospects? “It is really heartening to see so much private equity participation in city projects. Despite Nandigram and bandhs, the interest of global and local investors in the city and state show that they believe in Bengal’s potential in the long run and are willing to put their money here,” said Abhijit Das, the regional director of Jones Lang LaSalle Meghraj, a real estate consultancy firm.

Many believe that the entry of big equity investors would eventually help streamline the regulatory process, which should result in less paperwork.

A recent PricewaterhouseCoopers report refers to fragmented ownership and absence of clear land title in India, which act as barriers to organised deals.

Absence of real estate investment trusts, commercial mortgage-backed securities and other secondary investment vehicles are also hindering capital inflows.

The RBI’s restrictions on repatriation of capital, too, limit the options of cross-border funds.

The Urban Land Ceiling Act, which restricts the size of property under individual possession, and high stamp duty, which raises transaction cost, are other dampers.

“All such shortcomings, including lack of transparency that make valuations and investment decision-making challenging, will be streamlined. As more global investors put in money, they will insist on greater compliance and clean books,” Das added.

Shriram Properties has entered into an agreement with two US-based private equity real estate firms, Walton Street Capital of Chicago and Starwood Capital of Greenwich to develop a $1.25 billion (Rs 4,944 crore) integrated IT township.

Called Bengal Shriram Hi-Tech City, it is being developed on 314 acres, part of a 700-acre expanse that was previously occupied by a plant of Hindustan Motors in Uttarpara.

“Typically, investors want an internal rate of return (IRR) of 20 per cent. The participation of private equity investors indicates that they are taking a long-term view. Calcutta, which has witnessed a lot of migrant IT work population, has made an impression,” said Jai Mavani, the executive director and head of real estate at KPMG, the global advisory services firm.“There is some talk about overheating of the sector and certain areas, like the National Capital Region and Chennai and others, have experienced a correction. But as Indian real estate matures, even if the IRR drops from 20 to around 15 per cent, it will be attractive enough for private equity funds,” Mavani added.

New Vernon, a $1.4-billion India-specific fund from the US, has acquired a 50 per cent stake in the city-based Intelligent Infrastructure Ltd for Rs 30 crore.

Intelligent Infrastructure Ltd, a joint venture of the Surekha Group and the Shrachi Group, is setting up Globsyn Crystals, an IT infrastructure project in the Salt Lake Electronics Complex.

However, the investments are neither IT-specific nor overly dependent on the sector. Out of the six major investments, two deal with IT, one hospitality and the rest residential projects.

UK REIT, Eredene Capital, Credit Suisse and Yatra Capital listed on Amsterdam Euronext have also invested in real estate projects in the city.

“We are bullish about the prospects in Calcutta. Our internal studies show that in the next five years, Calcutta will emerge as one of the key cities for real estate development. The city will outpace many others and demand will soar,” said Ajoy Kapoor, director of Yatra Capital.

The company has invested Rs 117.6 crore in Riverbank Holding’s IT park in the city. Yatra plans to bring Euro1 to 1.5 billion to the Indian real estate sector in the next few years.

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