 "Sanjeev Dasgupta")
Singapore-based Ascendas has been one of the most prolific investors in Indian commercial properties. It has its India-focused real estate investment trust listed on the Singapore Stock Exchange and floated a real estate fund in the country where Singapore's sovereign fund GIC is a principal investor. Sanjeev Dasgupta, chief executive officer of Ascendas Property Fund Trustee, talks to Raghavendra Kamath about the group's India plans. Edited excerpts:
Will Ascendas look at floating a real estate investment trust (Reit) in India if allowed in the next Budget? If no, why?
We successfully launched the Ascendas India Trust as the first Indian property trust in Asia. The Trust was listed in 2007 in Singapore and today, it holds six income-producing assets valued at $700 million in India. We do not have any immediate plans for a Reit in India.
We're aware the real estate players are hopeful of further improvement in the tax legislation on Reits, in line with international markets. We continue to track these developments and will take a view as things become clearer.
What are Ascendas' plans for India in 2016 in terms of investment and property development?
The recently launched Ascendas India Growth Programme is a testimony to Ascendas and our investors' commitment to invest in the country's growth potential, opportunities and strong demand we see in this sector. We are constantly on the lookout for opportunities to invest/develop the right assets with like-minded partners. We believe key sub-sectors such as CBDs (central business districts), IT (information technology) office and logistics will continue to see a growth in demand. Leveraging on the projected strong demand for business space in India, we will continue to focus on Tier-1 cities such as Bengaluru, Chennai, Delhi and the National Capital Region, Hyderabad, Mumbai, and Pune.
Are you planning any India-specific property funds or platform deals with Indian developers/fund managers?
We launched a fund called Ascendas India Growth Programme in 2013 with Singapore's sovereign wealth fund, GIC Private Limited, as a principal investor. We are currently making investments from it.
How do you look at the recent change in foreign direct investment (FDI) norms in real estate?
The recent change in the real estate FDI norms is a big step and could improve ease of doing business and strengthen business confidence in the sector. The most noteworthy change is, foreign investors can buy income-producing assets here in India.
How do you look at revival in Indian office property market vis-a-vis other Asian markets?
The Indian IT/IT-enabled services sector continues to grow as India moves up the industry value chain to provide cutting-edge services in software development and research such as Saas (software-as-a-service), cloud, and Internet of things. This is reflected in increased office space absorption in various markets such as Bengaluru, Gurgaon, Pune and Hyderabad. Leasing volumes are up year-on-year in the top five cities in India.
Within our own properties, we are seeing strong demand and positive rent reversions particularly in Chennai.
What has been your experience of investing in India?
Overall, our experience has been positive. There have been periods of ups and downs. While market cycles are a part of business, some of the challenges have been frequent tax changes and inconsistent regulatory policies. Some of the recent relaxations in FDI (foreign direct investment) policies hold significant promise, especially if accompanied by further economic reforms such as GST (good and services tax), reduction in corporate taxes etc. India can be a profitable market for long-term investors like us, who have been here for two decades, but a difficult market for those who try to time the markets.
Can you throw some light on your exits so far?
Our investments have been in income producing assets and in greenfield developments. In greenfield projects, there have been occasions where statutory approvals have taken much longer than envisaged, causing delays and reducing returns. However, once the developments have been completed, the leasing demand has been good and as a result, we enjoy high occupancy levels in most of our assets. As a Singapore company, we have high standards of governance. We have strategic partnerships with state governments in some of our large projects and they have been supportive in resolving some of these approval related issues.
What is the outlook on rentals? When do you expect them to start inching up?
We are seeing a gradual improvement in rentals in all our key markets. Leasing volumes have been on the rise in Bengaluru, Hyderabad, Pune and Chennai, and vacancy levels are coming down. We do expect this trend to continue over the next 12 months.
What kind of returns do you expect when you invest?
At a broad level, most private equity investors would expect IRRs (internal rate of returns) in excess of 20 per cent for development and in the mid-teens for income-producing assets. IRRs on development are a combination of various factors such as project timelines, rental growth, exit opportunities, etc. As mentioned earlier, the demand side is positive. If the execution and exit can be managed, the IRR should improve.
