Major overseas real estate developers, real estate investment trusts (REITs) and venture funds have begun negotiations in India to set up 100% subsidiaries or strike strategic alliances and equity investment deals with counterparts in India.

Industry sources estimate that the initial FDI investment would touch Rs 4,000 crore.

This follows the pre-budget decision of the government to allow 100% foreign direct investment (FDI) in real estate construction.

“We are meeting two or three prospective foreign investors every week. Not all of them are aware of the guidelines, but they have come armed with lawyers and are dead serious,” says Pranay Vakil, chairman of the property brokers and consultants Knight Frank India.

Knight Frank has taken on board 26 foreign developers and funds as clients since the new FDI norms kicked off and Mr Vakil claims this adds up to as much as Rs 2,000 crore in the pipeline.

The initial interest and enquiries have come from real estate majors and funds from south and southeast Asian countries like Malaysia and Singapore. Companies like the Salim Group of Malaysia and Kepeland of Singapore are already operating in the country.

However, for the first time there are a clutch of US developers and funds that have also begun exploring investment options.

New York-based commercial developer Pischman, for instance, is said to be in talks with ICICI, while the Houston-based developer and fund Hymes is also scouting for partners.

Malaysia-based UT Projects, Singapore-based Singapore Properties, the Ascott Group and the US-based Blackstone group are among the overseas property majors which are scouting for joint venture opportunities in India.

The real estate funds, which have evinced keen interest in the Indian market, include the US-based Broadstreet AGKS India Fund, Ireland-based Hypo Real Estate Bank, JP Morgan Partners and Warburg Pincus.

There are some companies that have applied under the old FDI norms for setting up 100% foreign-owned ventures for setting up intgrated township that will now seek to broaden their activity in India.

For instance, a South Korean group Hanna Constructions promoted by Mun Yoon Keum, has incorporated a subsidiary in Chennai for construction of residential and commercial complexes.

Senior industry sources said the last 10 days have seen hectic parleys between officials from overseas companies and funds with their counterparts in Indian companies.

These foreign players seem to have zeroed in on five major companies who they feel have the potential to undertake huge projects.

However, before the deals area actually inked, a lot of ground needs to be covered. For one, the detailed investment guidelines under the new FDI real estate norms have not yet been notified.

Moreover, there is confusion among foreign investors between wanting to develop townships and pre-let commercial premises, points out Knight Frank's Pranay Vakil.

Similarly, while IT buildings have been clubbed with hotels in the preliminary norms, development of shopping malls has been kept out.

“While many foreign players are sniffing around, the final deals will depend to some extent on the detailed guidelines,” Akshaya Kumar, CEO of Colliers Jardine Property Services said. “FDI investment in real estate is going to be more in dribblets rather than a flood,” he added.

Mr Vakil was more optimistic but said investment opportunities were limited by the shortage of ‘A' Grade tenanted commercial buildings and available projects promising good returns.

An investment of around Rs 5,000 crore would exhaust the existing inventory of opportunities, he added.

Among the available trends, it seems the foreign lawyers and real estate advisors are pushing for 100% subsidiaries, while property consultants like Knight Frank are proposing 50:50 joint ventures.