A tale of two countries

It is always fun to compare. Take India and the Ukraine, for example. India can trace its civilization back 5,000 years, has a population of 1.1 billion and is about one-third the size of the US.

By contrast, Ukraine was first established in the 17th century, has 48 million people and is roughly the size of Texas.

When it comes to economic statistics, India continues to dominate: its GDP is roughly $3.6 trillion (€2.8 trillion), more than ten times the size of the Ukraine.

But putting aside these fundamental differences— and many, many others—what the two have in common is their need for foreign investment. In recent years, both countries have attracted a growing number of real estate investors eager to cash in on their burgeoning property markets. But as far as their governments are concerned, there is always room for more, particularly given each country's current lack of infrastructure.

Which is why last month in London, government ministers from both the Ukraine and India came to tout their country's respective benefits. And even though both countries possess substantially different real estate markets, both investment forums were held in equally plush surroundings. India's event took place in the quiet splendor of Marlborough House, which is used these days for Commonwealth functions. Just a few doors down along Pall Mall, the Ukrainians took refuge in the Reform Club, which has counted among its members Sir Arthur Conan Doyle and Winston Churchill, to name but a few.

Usually, forums such as these flatter to deceive as facts and figures are bounced off the walls. And these two events were no different. But there was also some real information provided, especially in the case of India, where the focus was on building enough hotels before India hosts the 2010 Commonwealth Games.

Speaking under a portrait of Her Majesty the Queen, the Indian minister of tourism and culture, Ambika Soni, said she recognized the problems encountered by budget hotel developers in India, namely high land prices, which is making anything other than luxury hotel builds unfeasible. Given the pressing need for budget hotel rooms, the government seems to be taking steps to relieve the problem.

Soni said that India's Finance Minister was examining her department's proposal to treat budget hotel developments as infrastructure investments for tax purposes, which could attract tax incentives over a ten-year period. She also noted that India was working on proposals to lease land to the private sector for budget hotel projects and that the state railway had identified 11 stations where land could be made available. In addition, the government has launched an initiative to encourage Indians to open their homes as bed and breakfast accommodation.

These might not solve India's hospitality problems overnight, but they seem to be a step in the right direction and a signal that the government is moving to encourage property development.

While India has identified a lack of hotels as a prime weakness, the Ukraine has pinpointed a lack of modern office and retail space. After an economic run-through by the deputy governor of the National Bank of Ukraine, it was time for more statistics. Nick Cotton, a Ukrainian-based director of DTZ, said new office developments will increase supply by 115,000 square meters by the end of the year. Nevertheless, this still falls short of a predicted annual demand of 120,000 square meters as new companies move in to the country.

Terry Pickard, chairman of NAI Pickard, said there was only one word to sum up the market: “booming.” But one delegate pointed out that infrastructure, particularly transport, needed to be addressed as a priority. The same could no doubt be said for India.

As investors are just beginning to feel out these two markets, it will be years before we know if they are really the happy hunting grounds their respective governments promise. In the meantime, institutional investors will find increasing opportunities to test the waters indirectly. Already one Indian real estate firm has announced its intention to float on the London Stock Exchange and sources in the City say Deutsche Bank is advising a second that plans to follow.

Similar trends are happening with respect to the Ukraine. Last year, Jersey-domiciled Primeros Property Fund became the first Western-standard investment vehicle to offer investors access to the country's real estate market. Observers say another firm is planning a publicly listed industrial fund.

Investor reception to these upcoming listings may provide guidance as to whether or not the spin doctors of India and the Ukraine prove effective. If not, their trade delegations might need to make another trip to London sometime soon.

Myerson sets up South African fund
The first British fund aimed at South Africa's property market has been launched by corporate raider Brian Myerson, the South African behind Active Value Advisors, established in 1984 with Julian Treger to invest in underperforming companies. According to a report in The Financial Times, Myerson's new South African Property Opportunities fund has raised £30 million ($57 million; €44 million) and will invest £100 million on projects primarily in Johannesburg and Pretoria. Approximately 70 percent of the fund will be earmarked for development, while the remainder will be used for mezzanine financing.

Queen invests in UK development fund
Palmer Capital Partners Limited, the property venture capital fund manager, has closed its new development fund, The Palmer Capital Development Fund II, on approximately £200 million ($380 million; €296 million). The five-year fund is believed to be the largest blind development fund ever launched in the UK. The Queen, through the Duchy of Lancaster, is an investor. Others include ING Real Estate Investment Management, Schroder Property Investment Management, RREEF and Arlington Property Investors. The first five schemes will be two office developments, one industrial project and two mixed use schemes.

Fletcher King launches property fund
Property services firm Fletcher King is launching a new property fund, following the success of its two investment syndicates, which have generated an overall annual return in excess of 20 percent. The new fund, SHIPS 06, will focus on capital growth with target returns of 10 to 12 percent a year. The firm says it will invest in city center offices and industrial estates throughout the UK. Fletcher King's initial fund raising target is approximately £15 million (€22 million; $28 million) or more. With leverage, the vehicle would have £50 million to invest.

Knight Frank's Rutley to float new fund
Knight Frank's private equity arm, Rutley Capital Partners, is set to float a new fund that will invest £600 million ($1.1 billion; €890 million) in European property. The group is aiming to raise £200 million in equity, which will be augmented with leverage of £400 million. Rutley European Property Limited is currently a private company based in Guernsey. The group has recently bought or made an offer for 12 properties for £108 million in Germany and Poland.

Hypo adds to New Star's warchest
Hypo Real Estate Bank has agreed to a €450-million ($577 million) acquisition facility to New Star Asset Management's Global Property Fund. The seven-year facility will be used to provide the debt required for acquisitions to be made by the new fund across Europe and Asia. New Star is an investment management company founded in 2000 by John Duffield, who previously headed up Jupiter Asset management.