Public sector giant Life Insurance Corporation of India expands its business focus to property development.

India's buoyant property development business has begun attracting the attention of international majors, who are eager to enter the business, especially after the Indian government threw open the sector to 100 per cent foreign direct investment (FDI).

But domestic giants, including the two largest owners of prime property in the country – Indian Railways and Life Insurance Corporation of India – have also begun showing interest in this burgeoning sector.

The phenomenal growth in property prices, especially in cities like Mumbai, Bangalore, and Delhi (including Gurgaon), and even in two-tier cities like Pune and Coimbatore, has aroused LIC's interest, which already has a significant presence (through its housing finance subsidiary) in the mortgage business.

Facing stiff competition in the life insurance business, which was thrown open to competition in 2000, LIC is now planning to pursue real estate development aggressively, a business where it has had significant experience. LIC had developed residential townships, including in cities like Mumbai, in the 1970s, and has made a successful business of what is after all not a completely unrelated business.

While LIC's share in the country's life insurance segment has dipped for the first time below the 80-per cent mark, it has been growing its business, thanks to the organic growth in the sector. It has also pushed ahead successfully in the 'bancassurance' business, following its strategic alliance with Corporation Bank

It now plans to leverage its vast landholdings to ensure both topline and bottomline growths. For a start, LIC plans to develop about 70 properties (of a total of 1,500-plus that it owns), promoting commercial and residential complexes. These 70 properties have an estimated value of about Rs1,000 crore.

Interestingly, Indian Railways is also planning to leverage its real estate strengths by promoting mainly commercial properties, especially outside busy railway stations in the metros and other large cities.

LIC has invested about 8 per cent of its corpus in the stock markets, and this is expected to grow to 10 per cent (with an additional injection of about Rs10,000 crore) over the coming months. Another 15 per cent of its funds are likely to be invested in infrastructure projects in the country. However, the real estate foray would not require such large outlays.

LIC recently took up a housing project for Indian Overseas Bank in Chennai. It has also unveiled an ambitious Rs100-crore commercial project in the capital of Tamil Nadu, besides other projects (including an IT park) in southern cities such as Thiruvananthapuram, which would cost another Rs100 crore.

Some of these projects would be taken up in joint ventures with other partners on a BOT (build-operate-transfer) or BOLT (build-operate-lease-transfer) basis. The insurance giant also plans to upgrade its existing buildings, to ensure better returns from rents. At present, the corporation earns around Rs150 crore by way of rentals, fetching it a three per cent return on its rented properties, which is negligible.

With interest rates plummeting – and likely to remain low for quite some time – LIC is eager to earn revenues out of its non-core activities including real estate development and renting of properties.

The real estate division of LIC is now a strategic business unit, which will provide consultancy to other companies, including public sector banks. It will also take up projects to modernize its existing buildings, to ensure better yields.

LIC already has a major presence in the housing finance business. Enhancing its profile in the property development business is now a natural move, a kind of backward integration, which should also do wonders for its bottomline, considering the remarkable growth of the real estate sector in India.