Real estate hots up in small cities

Trammel Crow Meghraj, a joint venture between Meghraj Properties of the UK and Trammel Crow of the US, is launching a real estate development fund in India. The fund, expected to be around $300 million, will focus on tier II and tier III cities. Expected to be closed by March 2006, it is mainly for institutional investors and high net worth individuals.

"There is a 300-million strong middle class, which is buying homes, cars, credit cards and would like to go shopping at the malls. And most of them don't live in the metros. They live in tier II and tier III cities. There are 112 such cities in India. That is the population we are targeting. We expect this segment to provide the impetus for the Indian economy to grow between 7 and 8 per cent in the next few years," says Rohin R Shah, managing director, Meghraj Properties Ltd, UK.

The smaller cities' fund will initially focus on 10 cities including Agra, Visakhapatnam, Mangalore, Indore, Kochi and Bhopal. The firm is identifying the properties it will develop in these cities. "We will provide good quality housing, retail and leisure options for buyers in these cities," said Shah.

In addition, the company is also looking at two other funds: a sector-specific fund for the hospitality industry and an investor-specific fund for western India. These two funds are expected to launched in the next two years. Another sector we may focus on is SEZ development, said Shah.

Trammel Crow Meghraj in its earlier avatar as Chesterton Meghraj had published a report, which forecast a growth in tier II and tier III cities with big multi nationals and Indian companies looking at setting up back office processing units in these cities. According to the report, real estate development in the smaller cities is piggy backing on the BPO boom, which has now reached these cities.

Besides known IT destinations, cities like Chandigarh, Coimbatore, Visakhapatnam, Kochi and Jaipur are now being looked at as possible IT destinations. Chandigarh alone is estimated to have 5 million sq ft of IT space under construction. While Infosys is planning a campus in Le Courbousier's magnum opus, GE is eyeing the Pink City due to its closeness to Gurgaon.

Jaipur has also begun to figure on the radar of realty venture funds who are looking for a good entry point into the heated market. Nagpur recently got a Rs 300 crore (Rs billion) investment from Mumbai-based Krishna group of industries, which bought the historic Empress Mills and plans to develop it into IT Park, luxury residences, a five-star hotel and a shopping mall.

The last few months have seen IT majors such as IBM, Dell, Cognizant, Mphasis, Satyam unveiling plans for cities like Coimbatore, Mangalore, Chandigarh and Vizag. Wipro and TCS have acquired land at Vizag, while Honeywell is looking at expanding operations in Madurai.

Satyam has started work on its 50 acre campus in Vizag and is establishing a technology centre on seven acres in Thotlakonda on the outskirts. Mphasis has invested Rs 70 crore (Rs 700 million) in a BPO unit in Mangalore. Wipro and TCS have set shops in Kochi and Thiruvananthapuram.