Indian real estate to shrug off global credit crunch

By Sujata Rao

LONDON (Reuters) - Foreign investment interest in Indian real estate may suffer a setback due to the global credit crunch but 30 percent-plus returns and the fact that billions of dollars are still waiting to be deployed may shield the sector, one investor said.

Aashish Kalra, co-founder of Trikona Capital which last year raised $500 million via London-listed Trinity Capital, said some investors could face trouble raising capital to invest in Indian property in coming months.

An estimated $10 billion was raised globally for Indian real estate in 2006, with giants like JP Morgan, Citigroup, ING and Credit Suisse flocking to India with funds since rules on inward investment in construction were eased in 2005.

But Kalra said formidable legal, structural, political and cultural barriers remain in place. Consequently much of this money still remains uninvested.

"If you look at the amount of money that funds have raised for India, then compare with how little they have actually managed to deploy, you will see that less than 5-10 percent has actually gone in," Kalra told Reuters late on Tuesday.

"Yes there will be a knee-jerk reaction (to the tighter credit conditions). If you are a U.S. REIT (real estate investment trust) that's been investing abroad, the first thing you do in such a situation is pull it all back in," he said.

"But the point in India is that almost none of this money went in anyway, so nothing will be coming out."

After years of steep price rises, analysts believe a property correction of 10-40 percent is imminent in major Indian cities, while the ongoing liquidity problems stemming from the U.S. subprime mortgage crisis may limit future overseas commitments.