Investors are like birds looking for ripe fruits. They unceasingly seek out opportunities to make gains, wherever the opportunities may exist. And much like the birds which become nervous at the sight of a hunter, investors also are quick to take shelter when adversity appears.
After the global melt down of 2008, investors had become extra cautious and many markets witnessed a substantial shrinking of investment volumes. But then, investible cash is like a seed. Therefore, capital cannot sit idle for long time. Willy-nilly, the investors slowly start scouting for opportunities. With much caution in the beginning, the pace of investment increases gradually until a normal market condition is found.
We know that big investors are broadly of two types – those who actively seek out opportunities and make direct investments, and those who invest on behalf of other stakeholders as fiduciaries. The first category consists of extremely wealthy persons and trusts formed by such persons. Not all the rich are experts in managing their money. The money invested by individuals or on their behalf by representatives is known as private equity. In addition to making long term committed investment, such funds are also offered as loan funds to leverage some transactions.
Foreign Institutional Investment (FII) is another avenue for real estate business to get funding. These may include banks looking to invest their lendable cash as loans to real estate developers or trusts. Then there are statutory bodies like housing boards, infrastructure development corporations, etc which are specifically focused on particular segments of economic activity. By their very nature, they can be relied on for lending or otherwise investing in their assigned slot.
One of the factors influencing the flow of investible money to an economy where there is demand for cash in the business environment there. This would include competition for meeting the demand, governmental regulations, monetary system prevailing, and also the capacity of the clients to efficiently utilize the money and produce attractive returns for the investors. A local bank may be better placed to judge the client more thoroughly than an outsider one. Private equity funds specializing in a particular segment of business, particularly real estate business, may be better placed than a general investor without such a specific focus. Thus previous exposure to the same market, or familiarity with the business environment puts certain Investors ahead of others in catering to that particular market.
Factors affecting the home economy of an investor may have a bearing on the decision to invest in the particular market, even if such a proposition looks attractive. For example, interest rates in the US and Japan are among the lowest in the world. That makes investments abroad a better choice for investors from these countries. However, as and when some noticeable change occurs in their home economies, these investors may revise their view and choose to invest more at home.
Given all these ingredients that go into a business decision, there is no uniformity in decisions of various investing funds entities.
Take the noted American real estate player Donald Trump for example. At a time when most foreign funds had been reluctant to invest big time in Indian real estate, Donald trump tied up with Panchsheel Project in Pune, lending his brand name under a licensing agreement.
Donald Trump has done it once again this August, giving the Lodha group in Mumbai the Trump label to launch a 75 floor residential structure named Trump Tower. It would be a land mark in the Lower Parel area. A six bedroom flat costing Rs 18 crore may not be much of an attraction for those who are in a position to afford that range of investment. The possible occupants would be new entrants to this income level. The only differentiating factor offered by the Lodhas is concierge service for everyone of the 320 flats.
It is important to note that Trump has not invested in these two projects, but only licensed the use of his brand. He further followed it up by announcing that in view of changed economic and political situation in India he would invest substantially in India. Both these aspects indicate two important glimpses into his thinking: One, he trusts the business environment in India to grow positive in future and therefore willing to lend his name to large sized prestige projects in the country; and two-that he is not yet fully convinced that the time is ripe for a full commitment of his money here.
There are quite a few Donald Trumps waiting in the wings for the economy of India to look up, so that they can come in with large investments. Meanwhile they are happy investing through participatory notes etc to gain small but quick profits whatever comes their way. India is looking up!
