 "If done properly, India could have a thriving Reit market: Sachin Doshi")
APG Asset Management is a Dutch pension fund asset manager with ^400 billion assets under management (AUM). Approximately, 10 per cent of its global AUM is invested in real estate, making it one of the world’s largest institutional real estate investors. APG's private real estate portfolio in Asia-Pacific is valued at close to ^5 billion. It has a joint venture with Godrej Properties and an investment venture with Xander Funds in India. It is now stepping up its investments in Indian real estate. Sachin Doshi, managing director and head of private real estate investments, Asia-Pacific, talks to Raghavendra Kamath on plans for Indian realty. Edited excerpts:
How do you look at the opening of the real estate investment trust (Reit) market in India. Do you expect good response from global investors and retail investors for the same?
The introduction of Reit legislation is a positive for the real estate sector at many levels. First, it creates a possible exit route for private real estate investors and developers to monetise their stabilised assets through listed markets. Second, it supports the institutionalisation of the real estate sector and increases transparency in reporting, valuation and transaction activity. Finally, it allows investors to participate in the ownership of institutional quality real estate in a liquid structure. If done properly, India could have a thriving Reit market over time. Institutional investors would be interested in investing in Indian Reits that own the right assets and are managed by professional management teams.
Would you look at floating a Reit in the country?
We could consider monetising our stabilised assets through a Reit structure in the future, but it’s still early days. A Reit is only one of the many possible exits that we will evaluate at the appropriate time. At the moment, our focus in India is either developing or acquiring a portfolio of high-quality assets in the major urban centres. We are in a portfolio growth phase in India.
How do you look at the residential markets in India. When do you expect a revival?
The residential market has had a few bad years in India and we don’t see large-scale improvement in buyer demand. This is primarily due to inventory that is not appropriate for the demand that exists in the market as well as significant delays in delivery of units that were pre-sold. High mortgage interest rates and speculation in the market have not helped either. I won’t get into who is to blame for the delays, but residential apartments that are built at the right price point, in the right location by a reputable developer such as our partner Godrej, are found to be selling exceedingly well.
How do you look at the real estate market in India and its attractiveness and risk perception vis-a-vis other global markets?
Investors, including us, have to recognise India is still a developing market with rampant asymmetry of information, opaque real estate regulation and approvals regime, partner and liquidity risk, not different from Brazil, China or Indonesia. Having said that, India is an exciting market where we see a lot of potential for us to grow our portfolio and build a sizeable exposure. The key for investors is to be patient, prudently pick partners and projects and have a long-term view. At this point in time, India looks particularly interesting with demand across sectors picking up, supply-side constraints being brought down and the Indian consumer, especially the middle class, loosening its purse strings again. Ultimately, as long as we are being appropriately compensated for the (measured) risk we are taking in the market, we like what we see in India and feel that across real estate sectors, the country is possibly at an inflection point.
Are you looking to invest in malls in India?
We are certainly interested in the retail real estate sector in India but at this point, I wouldn't like to comment on market speculation. Needless to say, owning the right retail malls in major cities is an interesting strategy given the severe shortage of institutional-grade malls in India and the strong demand from tenants. Equally important is having access to the right management and operating team.
How is your venture with Xander for office assets progressing? Any new plans under the venture?
We set that office acquisition program up in middle of 2014 so are still investing through it. We have already acquired properties in that venture and have several other assets under contract which we look forward to acquiring before the end of the year. As and when the initial capital in the platform gets deployed we will consider expanding the capital base in that program. Given the strong net absorption and limited new supply of office space across the 4-5 main office markets, we continue to like the strategy.
How has the Godrej fund where you are a corner investor progressed? Will you look at investing more in that programme?
At the outset, I would like to clarify it is not really a fund. APG owns 50 per cent of that programme and it is essentially a joint venture (JV) between us and Godrej. We have approval rights on all investments and major decisions. The JV is progressing well and the first programme, which was $200 million, is fully invested. In less than six months since the inception of the second programme, we have invested in a project each in Bengaluru and Mumbai.
Will you look at buying stake in any rental arms of developers such as Raheja, Prestige etc? If yes, can you elaborate?
We evaluate a lot of deals in the market. Not all structures work for us, so we will remain disciplined. Raheja and Prestige both have solid portfolios and management teams, but it’s premature for us to comment on whether we’ll end up investing in either of these. We’re undertaking our own analysis of these propositions.
Do you have any other plans here?
India is an exciting market for us and we see a lot of potential for us to be invested across sectors. We already invest with Godrej across two residential platforms, with Lemon Tree in mid-market hotels, Xander in commercial office and if rumour has it, then in retail malls with Virtuous Retail! We’re interested in logistics and office ‘develop to core’ but have not identified suitable partners yet. We see ourselves as a long-term and committed player to Indian real estate. We are here to stay.