Donald Trump Jr, whose father built a multibillion dollar fortune in real estate, plans to set up a fund of as much as $1 billion to buy property in India, betting on the nation's growing wealth. “Trump may create the privately held fund with investors including an Indian family,” he said.
He didn't give specifics on how he'll raise the money, or when the first investment will be made. Trump would join Deutsche Bank AG and Lehman Brothers Holdings Inc in amassing funds to invest in a market that recorded the world's highest growth in millionaires last year, fueling demand for luxury homes.
The highest borrowing costs since 2002 have ended India's five-year property boom, curbing valuations of projects and developers. “The real estate market is in a downturn now,” said Ritesh Vohra, director of investments at Mumbai-based Saffron Asset Advisors, which manages more than $400 million in two property funds. “There's some more pain left over the next two years or so, and that could be an opportunity to invest.”
“Property prices in India are likely to drop by about 20% to 25%,” Sarang Wadhawan, MD of Housing Development & Infrastructure Ltd, India's third-biggest developer by market value, said. His comments echo statements made last month by Keki Mistry, vice chairman of the nation's largest mortgage lender, and other developers. 'Appreciate Luxury' “The fund will be for acquisitions of real estate in the high end, and across the spectrum,” said Trump. “The market place is beginning to understand and appreciate luxury, so there is a great opening for us there, as well as in resorts.”
The number of Indians with financial assets of more than $1 million grew 23% in 2007, according to a report by Merrill Lynch & Co and Cap Gemini SA on June 24, surpassing China's 20% and Brazil's 19% growth. New York-based Trump Organization Inc also plans a residential and hotel project in Mumbai with a local partner to tap the growing wealth of middle and higher income Indians. The city is India's biggest trading centre for stocks, bonds and commodities, and home to some of the country's largest companies including Reliance Industries Ltd and State Bank of India. “Our entry has to be in Mumbai and that's where everything is going on right now in terms of the high-end real estate,” Trump said.
“That's the place where one is going to achieve the highest prices per square foot. It sets the tone for all of the other future developments.” Overseas Funds Economic growth forecasts of more than 8% for this year are luring global funds to India, who expect growing incomes and wealth to fuel demand for property. Lehman's real estate fund last month bought a $175 million stake, its biggest investment in India's realty sector, in a Mumbai project under development by Unitech Ltd.
The rally in property prices may end this year as falling stock prices and rising interest rates slow sales and make it tougher for smaller developers to borrow money. The 14-stock Bombay Stock Exchange Realty Index has declined 63% this year, almost double the 32% drop in the benchmark Sensex.
“The pendulum has started shifting back a little bit to the point where prices have started to become a bit more reasonable,” said Trump. “It will allow companies such as ours to justify buying land. It's a good opportunity for us.”