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Piramal plans $2 billion bet on property sector revival

MUMBAI/NEW DELHI (Reuters) - Piramal Enterprises Ltd plans to invest $2 billion in real estate projects over the next two years, betting that a revival in the economy under a new government will boost demand for property, its billionaire chief said.

Chairman of Piramal Enterprises Ltd. Ajay Piramal gestures as he speaks during a news conference in Mumbai February 6, 2012. REUTERS/Danish Siddiqui/Files

Its planned investment could help developers complete commercial and residential projects left unfinished when they ran out of money and banks cut back on credit to a sector badly mauled by a slowdown in Asia’s third-biggest economy.

“We are more optimistic about the sector this year compared to last year because of a stable government and the overlying expectations for the economy to perform better,” Ajay Piramal, chairman of the diversified company, told Reuters.

Home sales have come to a halt as high inflation and interest rates deter buyers, pushing up the stock of unsold inventory.

In the region around the capital, New Delhi, the inventory pile-up could take 53 months to clear at the current pace of sales. In India’s leading metropolitan areas, including financial capital Mumbai, it would take 35 months, according to Mumbai-based firm Liases Foras.

Many property firms are scouting around for new sources of funding, with banks unwilling to lend more to the debt-laden sector and the weak financial situation of many developers making equity offerings unattractive.

Indian and foreign investors have become cautious on real estate after two years of less than 5 percent economic growth. Private equity investment in the sector dropped to $1.6 billion last year from $1.95 billion in 2012, according to research firm Venture Intelligence.

A Reuters poll of economists last month forecast the economy would grow 5.5 percent in the current fiscal year to March and 6.4 percent the following year as Prime Minister Narendra Modi pushes through reforms to attract investment.

“The banks are not still increasing their allocations to real estate. Since banks are not increasing and demand for money is there, the NBFCs (non-banking financial companies) and PEs (private equity firms) are busy of course, more transactions are happening,” said Amar Merani, CEO of Xander Finance Private Ltd, part of The Xander Group, an emerging markets investment firm.

Piramal, known for identifying new investment opportunities and whose moves are closely watched by bankers and investors, said his company was looking to put money into both residential and commercial projects.

It makes real estate investment through debt, equity and structured finance routes.

In February, it tied up with the Canada Pension Plan Investment Board, which manages Canada’s national pension fund, on a $500 million fund to finance residential projects in India.

Piramal, whose other business interests include healthcare and speciality glass packaging, stepped up its financial service activities after selling its Indian drugs business to U.S.-based Abbott Laboratories for $3.72 billion in 2010.

Editing by Alan Raybould