Arvind F Pahwa of JP Morgan Asset Management’s Real Estate Division says that they are looking at realty opportunities in the retail and hospitality sector and their real estate fund will focus on areas in Hyderabad, Pune, Vizag, Surat and Chandigarh.

He adds that they may not invest directly into SEZs and the growth seen in the last two years in realty, may be tough to maintain. He further states that they would enter into JVs with developers and talks are on for the same. He also mentions that they plan to invest in FDI-compliant real estate projects.

Excerpts from CNBC-TV18’s exclusive interview with Arvind F Pahwa:

Q: How is the real estate scenario looking to you, because there are some apprehensions that the market probably is about to soften up and it already has started softening up? In fact some of your peers have even gone to the extent of saying that there might be mini bubbles in some of the pockets in India?

As you rightly said, there are only mini bubbles, but I think overall, the sector is pretty good, there are huge opportunities and there is a lot of potential across the country. With the India story doing very well, with the GDP growing at the rate at which it is growing, I think there are sufficient opportunities to invest all across the country. India is a huge country with a population of 1.1 billion people and a young country.

Till now, in the real estate sector we were looking only at cities like Mumbai, Delhi, Calcutta, Chennai or Bangalore. But now we are talking about cities like Hyderabad, Pune, Vizag, Surat and Chandigarh. India has 42 cities with a population of one million plus, each of these cities are like growth centres. So with the kind of growth happening across all segments, I think there is sufficient opportunity for funds to invest across these cities.

Q: What is the focus of this fund essentially, both in terms of how you will split your money across cities and projects?

A: It will be our endeavour to make sure that we do not put too much risk in any one particular segment and in any one particular city, but we would be investing across all segments. Having said that, the residential segment appears to be the best sector where the risk is comparatively less.

Considering the young population of India, who want to buy apartments for themselves over the new changing social structure and demographics, I see a huge potential in that area. There are indications or reports in which I had read that there is a shortage of nearly 20 million housing units across the country.

So if this was to be translated into square feet, one will be talking about billions of square feet across the country. Apart from residential segment, for the commercial sector as per the Nasscom report and the kind of employment that will be generated in the IT sector, it is estimated that nearly 66 million square feet of real estate would be required in the next few years, just for the IT sector.

The retail sector is again a booming area where nearly 30 million square feet of real estate space is required all across the country, with the shift from fragmented, disorganised retailing to a more organised sector.

One is seeing that new players are coming into retailing and there is going to be a huge demand in this area and an opportunity for funds to invest. Hospitality is another area, which we are looking at very seriously. Budget hotels have a great opportunity for business travellers, both foreign and Indian.

Another sector, which many funds have not looked at, is the logistics and the supply chain sector. With the retail sector growing and with the demand for warehousing units, that also could offer an opportunity. SEZs are another area that would offer opportunities for funds.

Q: Where do you see the biggest opportunities amongst metro cities, what seems most attractive to you at JP Morgan?

A: In metro cities, hospitality is one sector, the residential sector as I mentioned earlier definitely offers the least risk opportunity. But apart from metro cities, I think it is the tier II cities, the new growth centres, which are emerging. With improved connectivity, with improved infrastructure, cities like Chandigarh, Indore, Bhubaneswar and Kolkata are emerging. In the southern states and of course in cities like Bangalore, Chennai and on the Old Mahabalipuram Road, OMR, there are lots of IT activities happening. Hyderabad is emerging as a very attractive proposition for developers and also for the funds to invest in.

I think Hyderabad is a great opportunity with improved infrastructure and a very proactive approach by the government. The kind of development that they are doing is all across the city, it is not just concentrated in one Central Business District, CBD, area, it is in the north, south, west and east. With the new airport coming up and with the outer ring road that is being developed in Hyderabad, I see a good opportunity in that city.

Q: I believe that you might be looking at partnerships with local developers as well, anything that you have tied up already and in which cities?

A: The model of the fund is that we would be entering into joint ventures with the developers and then investing. We would be advising our managers in New York to invest in Foreign Direct Investment, FDI-compliant projects. We have not tied up with any developer as yet, but we are talking to a number of them. We see an opportunity to advise our fund managers to invest along with A-grade developers who have a track record, who are transparent and who have a professional approach. These would be joint venture partnerships.

About JPMorgan Asset Management:

JPMorgan Asset Management is a leading global investment manager that delivers financial expertise to governments, corporations, endowments, foundations and individuals worldwide. Their business provides the full spectrum of U.S., non-U.S. and global investment management products - from traditional cash management, equity, fixed income and asset allocation to alternative asset classes such as private equity and real estate. Through thier association with JPMorgan Retirement Plan Services®, they provide administrative, investment and communication services for corporate retirement plans. Thier global resources position them to deliver excellence in investment performance and the highest quality client service.