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India’s real estate market exploding

With a combination of heavy direct foreign investment and price increases in raw materials and labour, real estate prices in India could be doubling before the end of this year. 

It appears as though all of India is a literal hot spot when it comes to the real estate industry. While the majority of the coverage regarding the country's booming economy has related to businesses such as manufacturing and technology, relatively little has been written about the country's rising property prices. A considerable number of joint ventures between international real estate agencies and Indian firms have been created and are working at a quickened pace to stay ahead of the hot market.

With the Indian real estate industry reaching $57 billion in 2007, the Eleventh Five Year Plan forecasts a potential $90 billion to be reached by 2012. Fuelled by a consistent stream of foreign investment money, the growth seems to be accelerating. With an investor pool consisting of REITs, private equity, bankers and other large firms, the number of joint ventures seems to increase on a weekly basis.

The first group of large firms to work together were companies such as Meghraj and Trammell Crow which then merged with Jones Lang LaSalle. Large-scale service providers such as these were only the beginning. Following them were smaller joint-ventures on a project-specific basis. As usual, the structure usually consisted of the larger international firm providing funds and technology, while the local firms provided regional expertise and government contacts specific to the local markets.

The Indian real estate market is also witnessing an influx of investment money from real estate investment trusts. Being listed overseas, REITs enable their investors to enter the Indian rental markets. The real estate investment trust Ascendas develops and invests in IT parks in various locations around India, but the firm is listed on the Singapore bourse.

Analysts' predictions for the Indian real estate market are generally optimistic, with increased M&A activity. A relatively young market, the Indian real estate industry will continue to mature in the coming years. How the government will respond to the high level of activity is yet to be seen.

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