Monday, January 28, 2008

Emaar and the Scramble for India

Executive magazine
By Paul Cochrane in New Delhi

As if building the world’s tallest building and investing in projects throughout the MENA region wasn’t enough, Dubai-based property giant Emaar is rolling out its presence in the world’s second most populated country.
Through a 2005 joint venture with Indian development company MGF, Emaar-MGF has been involved in multi-billion real estate projects from Delhi in the north to Hyderabad in the south, and plans to build in India the world’s largest mall and a Giorgio Armani luxury hotel.
But Emaar is not the only Gulf developer in the subcontinent seeking a slice of a burgeoning middle class with extra purchasing power. Nakheel, a subsidiary of Dubai World, is hot on Emaar’s heels, inking deals in 2007 worth $25 billion, along with Dubai-developer Damac Properties announcing they were to invest $5 billion in India over the next five years.
Other private Gulf investors are also to sink $5 billion into developments in a sector analysts forecast will surge by 700% in the next decade.
The sudden foray into India by Gulf investors is not confined to the likes of Emaar and Co. seeking to build real estate and malls. With transactions in the market expected to grow from $14 billion to $102 billion in the next 10 years, $150 billion to be spent on infrastructure, and Indian stock markets riding high- Bombay’s bourse rose above 20,000 points for the first time in late October – Gulf investors are scrambling to get in on India’s boom. Bahrain’s TAB Bank now has two funds in Indian bourses worth over $220 million and Dubai’s Abraaj Capital a $250 million fund with Mumbai’s Sabre Capital.
Other developments are also afoot, with Dubai-based developer ETA Star Properties to develop a $923 million ‘infotech’ park in Chennai, and the Gulf Finance House to back the $395 million Energy City India, cementing Delhi’s energy links with the GCC.
And at the end of the year, RAKEEN, a property arm of the Ras Al Khaimah government, formed a JV with India's Trimex mineral group to spend $5 billion on developing residential, commercial and office space.
As Mohamed Ali Alabbar, chairman of Emaar Properties, told the press, “India is only an hour away from us, it is our true China and with the size, population, the culture, the economic policies, growth that exist in India, it's a great opportunity.”

Bullish market

Property and mall developers are rising high on India’s7% annual economic growth and a middle class that is expected to surge from 50 million to 587 million by 2025, according to a McKinsey Global Institute study, propelling 5% of the population in the middle class bracket to some 40%.
But with an economic boom as well as a rising population – 1.1 billion and growing - property prices are spiking. And the rush to develop real estate in India, as for any emerging market, is also about the scramble for land.
Mumbai is now the second most expensive city globally for office space, with rent rising 55% in the last year, and New Delhi in the eighth slot, up 34.4 %. Such rising costs were reflected in a $10 billion Nakheel development last year, with land accounting for some 40% of the price tag. As a result, Emaar-MGF has embarked on a $12 billion pan-India program that will include special economic zones, hospitals, residential units, hotels and malls.
“We have a pan-India presence, and will have a presence in all 22 states through the land we have acquired and are in the process of developing that,” said Anupama Chopra, Head of Corporate Communications at Emaar MGF Land Limited.
In bulging-at-the-seams cities like Bombay with 12.6 million people and Greater Delhi with over 14 million, developers are focusing on the tried-and-tested in the Gulf ‘integrated township’ model of residential and retail space.
“This is something that is prevalent in the rest of the world but not in India,” said Chopra.
Utilising the same model as in the Gulf, most of Emaar’s architectural designs for Indian projects are the same, “trying to replicate here” what worked in Dubai, said Beedisha Chakrabarti, Corporate Communications Manager at Emaar-MGF. One of the projects, in Gurgaon, a satellite city of Delhi, is to be called Palm Springs.
To raise funds for such projects, Emaar-MGF plans to sell a 10% stake this year through an IPO, which bankers suggest might raise some $1.5 billion. When Nakheel’s JV partner DLF listed on the Bombay stock exchange in July, $2.25 billion was raised in India’s biggest IPO, and shares have since gained 30% in the past six months.

Retail dreams

Part of the land Emaar and Co. are investing in land is for the growing retail market, which is expected to grow 14 times by 2012 and retail chains to expand 25% a year, currently at only 5% of the market. Indicative of growth is the surge from 1.5 million sq. ft of retail space and 30 malls back in 2001 to 27 million sq. ft of space and 230 malls last year. But compared to China, the country has some way to go to match its neighborhood superpower rival’s retail space growth, which surged to 2.4 billion sq. feet between 1995 and 2003.
Negating the retail space difference however will be Nakheel JV partner DLF’s 3.6 million square feet Mall of India. And not to be outdone, Chakrabarti said Emaar wants to replicate the Dubai Mall in India. “We are looking at doing India’s biggest mall, as we cannot compete with our own product by having the biggest in the world,” she said.
However, at 5.8 million sq. ft the Indian version will out trump Dubai Mall’s retail space of 5.6 million sq. ft.
In India’s current boom climate – the dream of Dubai super-sized – it would therefore not seem overly farfetched to imagine Emaar building India’s tallest building some time soon. But what is more probable is the creation of development icons that have made the Gulf famous: offshore residential island projects, like the World and the Palm. “It’s on the drawing board somewhere but not right now,” said Chopra.

Top 10 cities worldwide for office space

Rank City Rent (Sq. ft/month)
1 London (West End) $27.47
2 Mumbai $15.90
3 London (City) $15.33
4 Moscow $15.33
5 Tokyo $15
6 Tokyo (Outer) $13
7 Paris $10.68
8 Delhi $10.55
10 Hong Kong $8.90
Source: CB Richard Ellis (CBRE)

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