India and China are similar in many ways. Rapid GDP growth, huge urbanisation, growth in middle-class spends, a boom in housing, organised retail malls and a growing choice of products.
Most macro-economic factors are similar for the two but China is ahead in some developments by at least two-four years -- and real estate is one of them. India, however, is fast catching up and most international companies wanting to invest in real estate consider both China and India top markets.
It is true the Indian economy only began to open up after 1990 and should not be compared to China, where free-market systems began to take hold after 1978. Only now are the effects of Indian reforms beginning to become
evident. Nevertheless, a comparison is always imminent when one is talking about real-estate developments in the two large countries.
While China began to allow overseas businesses to mainland China in 1978, it took them 10 years to allow private ownership of real estate. Prior to hat all housing was owned by the government, says CY Leung, chairman, Asia Pacific, global property adviser, DTZ Debenham Tie Leung.
In fact, Leung was one of the first to help the Chinese government sell the first parcels of land in Shanghai in 1988-89. Since then, he says, the country has invested heavily in building infrastructure, roads and tunnels. State governments that sold land in their cities plowed back the money into large infrastructure development projects.
Some experts feel that India's story is better than that of China. While India's story is based on IT and knowledge, China's is manufacturing-based. Growth for India is comparatively easier with less infrastructure required for IT as compared to manufacturing, which needs large, complex infrastructure including huge highways and machinery.
Still, a lot of what of the infrastructure projects and real estate scale we're seeing in India today has also happened in China a few years ago.
Take special economic zones, for example, which in India are sprouting up almost everywhere. If all of these are approved, we might see hundreds of SEZs, big and small, in the next couple of years.
The Chinese model, though, is different from ours. An SEZ in China is not a small affair. There, entire cities are part of these zones, which is why there are only four SEZs in China -- Shenzhen just across the border with Hong Kong, Zhuhai, Shantou and Xiamen. Apart from these, there are enterprise zones at a subsidiary level.
The manner in which projects are financed is different too. In India, the IPO market for real estate developers has just opened up. "There was a phase in the '90s when there were several IPOs in the Chinese real estate market. After that, till 2003, it was dry and, since 2003, the size of transactions has been growing. A typical IPO in 2005 would be valued at $200-215 million while in 2007 it has gone up to even $1 billion-plus.
"The size of transactions has more than doubled in 12 months," says Anthony Ryan, head of real estate and investment banking at JPMorgan.
"China is more an IPO and pre-IPO market, and real estate funds are starting to come in now. In China it is possible, today, to do corporate level debt equity financing or pre-IPO financing to get a push to raise funds for new projects," says Ryan.
"In India, pre-IPO financing is limited and the pressure to go into an IPO is stronger, which is why we see many companies hitting the market today," adds Kaustubh Kulkarni, ED, investment banking, JPMorgan.
In 1988, the Chinese government took some very bold steps. It removed all restrictions on foreign money coming into the country, and saw investors from all across -- Singapore, Hong Kong, Japan - moving in.
Foreign investment got in a lot of expertise and modern techniques into the real estate sector. That is what is likely to happen in India now, says Leung, with foreign direct investment flowing into India's real estate sector.
One of the apprehensions about allowing foreign investment in the sector is the fear that they will overshadow domestic real estate investments by local companies. Leung clears the point by saying that real estate
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investments are mostly domestic.