Friday Letter If you build it, they will come

India's township and IT park development sites may look rugged today, but they are attracting the attention of investors who see the benefit of waiting for towns to grow around their assets. 

Driving south on the main road from Delhi to the town of Gurgaon, you will know when you've entered this rapidly expanding suburb. As the road approaches the area, miles to the south of India's capital, there's a sudden explosion of small stores selling building materials. As far as the eye can see are row after row of merchants selling marble, granite and wood. Not surprising for a town that is still, essentially, one big construction site.

Gurgaon was just a village until the DLF Group bought farms owned by locals and started developing housing societies for middle class residents of Delhi. In recent years many multinationals have set up shop in the city, attracted to its proximity to both the metropolis and its international airport. Today the area is growing at a phenomenal pace, and real estate funds have been grabbing tracts of land to prepare ambitious development projects.

In June, London-based Trikona Capital, manager of the India-focused real estate fund Trinity, made its largest investment to date in an IT park township development in a Special Economic Zone (SEZ) in Gurgaon. The firm paid £40 million ($81 million) for a 49.4 percent stake in Luxor Cyber City, to be developed over a 67 acre plot of land. By its completion in 2012, the township is to include over 8.2 million square feet of buildings not only for IT businesses, but also for housing, schools, shopping and entertainment facilities for its workers.

Taking a look at Trikona's site today, you'd have no idea there are such illustrious plans in store. The site is a distance from Gurgaon's main area of development. It is accessed by a dirt road leading to an old and decaying Jain temple surrounded by overgrowth. Right before you get to the temple, you could be forgiven for missing the small wooden sign understatedly announcing that you've reached the future site of a £204 million development. The plot, located just behind the temple, is just an empty field today. But in six months' time, construction is due to begin on what is poised to become one of the area's most significant IT parks.

Although the site is removed from the main building activity in Gurgaon today, it is ideally situated in the corridor running between Gurgaon and the large planned development of IMT Manesar. It will also benefit from the fact that it is one of just two SEZs approved for the Gurgaon area, a distinction which will allow the companies residing in it to operate as foreign territories for the purposes of trade operations, duties and tariffs.

However, at the moment it takes a while to get out to the site, and so it is clear that significant infrastructure improvements will be needed to make Luxor smoothly connect to the rest of Gurgaon and Delhi. In fact, as you pass the chaotic jumble of unfinished roads, shanties, auto-rickshaws and cows sitting in the road on the way there, it is hard to reconcile the sight with the massive amount of money being raised for the Gurgaon area and others like it. But as many investors here will insist, a year from now Gurgaon will have completely changed. The city is constructing a metro line that will take passengers from Delhi to Gurgaon, and a new toll highway is to be built as well.

It's a common theme in India: the value lies not in what can be seen today, but what is in store for tomorrow.