Developers are seeking creative solutions for coping with falling property yields and rising interest rates. A solution being taken by many developers is to enter riskier markets, such as India and Russia, which have become the hot-ticket items of the day. At a conference on “Building Trends in the Real Estate Market,” held by Maalot The Israel Rating Company Ltd. and the Chaim Katzman Gazit-Globe Real Estate Institute at Tel Aviv University, Eliezer Fishman said, “In Russia, construction is expensive while land is cheap, whereas in India, land is expensive, but construction is cheap.”
Fishman Holdings is active in both India and Russia, through subsidiaries Mondon Investments Ltd. and Mirland Development Corporation plc (AIM:MLD), respectively.
Fishman added, “Another difference is that in Russia, the financing of land is allowed, but there’s no one to provide the financing, whereas in India, the financing of land is illegal, but there are people to provide the financing.” The common factor between the two markets is heavy demand for housing, offices, and commercial space. “India has a shortage of 23 million housing units,” he noted.
Fishman said that for historical reason relating to land ownership in India, the critical factor for a project was the purchase of land. “The price per sq.m. is almost the same between different regions, but the yields are another matter altogether. It’s therefore critical to choose the area where you’ll get the highest yield. Once you’ve bought the land, there’s no problem in obtaining financing for a project,” he said.
As for Russia, Fishman disputes claims about corruption. “Russia is no more corrupt than anywhere else in the world. We buy land with permits, period. Without permits, there’s no money, so I don’t have to bribe anyone,” he says.
Fishman also refutes arguments that prices in Russian are rising too high, too fast. He says that real estate prices have not risen in the past year, and that there is still much to be done. “Russia has not yet begun to be built. It has maybe 1% of the commercial and office real estate compared with other parts of the world. Apartment owners want to move from 27-sq.m. apartments to apartments of at least 60-sq.m.” He added that he only invested in projects with yields of 18-20%.
Fishman adds that Israelis have an advantage in Russia. “A big advantage for us is that we have Israelis who speak Russian, and we’ve posted them there. Russians don’t want to deal in real estate; it’s a side business for them, because the big money is in oil. A Russian uses his oil profits to buy finished real estate with a yield of 9%. They don’t like to get their hands dirty.”
Eliezer Fishman is the controlling shareholder in “Globes”.
Published by Globes [online], Israel business news - www.globes.co.il - on July 15, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007