Wednesday, November 21, 2007

Omaxe may tap West Asia as Indian real estate market cools

Real estate company Omaxe Ltd has decided to develop properties overseas in places such as Dubai in the United Arab Emirates (UAE) as the real estate market in India starts to cool and profits get squeezed.

The developer plans to build commercial and residential properties in Dubai.

“Last year was very bad for developers,” Rohtas Goel, chairman and managing director, Omaxe, said. “Prices declined by 10% and even by 30% in some locations, which has forced developers to look at overseas markets for expansion,” he added.

The company has decided to enter the Dubai real estate market as the average yearly return on an investment in Dubai is slightly better than in India, Goel said. “It is also easier to do real estate business in Dubai compared to India,” he added.

Omaxe will float an offshore development company to enter the Dubai market. Goel declined to say how much money Omaxe had earmarked for overseas development.

The company will develop real estate through joint ventures with a local real estate developer. Omaxe has to find a local developer to market property in Dubai in keeping with regulations of the UAE government. “We can acquire the land on our own, but to market the property we need a local partner,” Goel said.

Omaxe is in talks with several developers from Dubai for a possible tie-up. But nothing has been finalized yet, Goel said. In the last seven to eight months, the real estate market in New Delhi and its suburbs has seen a decline in demand mostly because of the high interest rates on home loans, which are at a five-year high. The interest rates have increased to 12%, compared with 9% just a year ago. That, coupled with the rising value of land, is making homes more expensive and less affordable—keeping buyers at bay.

“A few developers might be looking at overseas markets because of the high cost of land in India,” said Ganesh Raj, head, real estate practice at audit and consulting firm Ernst & Young India. “As return is a function of price of land, given the present cost of land, developers probably feel that returns in the overseas markets will be better. However, very few developers have actually started real estate development in offshore markets,” Raj added.

Omaxe’s plans to go global comes in the wake of similar efforts by other developers. Parsvnath Developers Ltd has decided to venture into real estate development in the UK, Singapore, UAE, Muscat and Mauritius. DLF Ltd is looking at international acquisitions, and Ansal API Ltd has a partnership with Malaysia’s UEM Group to bid for government projects in Malaysia.

Investors are not willing to buy residential properties any more as the interest rates have shot up and it is costlier to buy homes on borrowed money.

Investors are gradually exiting the real estate market, say developers. While investors constituted 70% of the buyers last year, it is now the reverse, Goel said. “Now the actual end-users constitute 70% of the buyers,” he added. Omaxe is present in 30 cities and nine states in India. The company operates across residential, commercial and retail verticals. Omaxe made an initial public offering of shares in July and raised around Rs600 crore.


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