India was ranked fourth in developing Asia for foreign direct investment (FDI) inflows as per the World Investment Report published in 2016 by the United Nations Conference on Trade and Development. The country is also termed, by the International Monitory Fund, as the brightest spots in the global economy. The country’s real estate sector so far had witnessed equity investments to the tune of $32 billion and global capital flow into realty in year 2016 was $5.7 billion, said the UN report.
As per the Department of Industrial Policy and Promotion (DIPP), during fiscal 2016-17, India received $43,478 million of total FDI equity of which real estate captured $105 million, while in the April-May-June quarter of 2017-18, the country attracted investments of $10,408 million of which $251 million went into construction, development of integrated townships, housing, build-up infrastructure, cineplex, multiplex and commercial complexes.
The real estate is one of the most powerful sectors of the Indian economy, solitarily contributing 5 per cent of the country’s gross domestic product and the sector is expected to grow to $180 billion by 2020, say clicbrics, an online realty advisory firm in India.
Recent amendments in FDI norms and new real estate regulations have definitely making the real estate sector more attractive for foreign capital infusion, says Shobhit Agarwal, Managing Director — Capital Markets & International Director at JLL.
“Calendar 2017 till date, the FDI into Indian realty sector is $2.75 billion compared to whole of 2016 which was $2.42 billion. Since 2014, our country has seen FDI infow worth around $8 billion in realty, this is higher than cumulative FDI inflows in prior 7 years. In rupee terms, the increment has been more than 25 per cent,’’ Agarwal explains.
Echoing similar sentiments, Anshuman Magazine, Chairman, India and Southeast Asia at CBRE says, India’s real estate sector is clearly on a revival path. A stable economy coupled with implementation of several policy reforms is making the sector more transparent, which in turn is improving investor sentiment.
As per Magazine’s observation, “Till few years ago, global investors were hesitant to invest into the sector due to ambiguity around policies and reforms. However, the scenario is changing rapidly. The recent improvement of India in World Bank’s Ease of Doing Business ranking as well as upgradation of the country’s sovereign rating by Moody is expected to further enhance realty’s long-term growth potential.’’
Niranjan Hiranandani, President at the national apex body Naredco (National Real Estate Development Council) too is of the opinion that “The liberalisation of FDI norms has boosted the confidence of foreign investors, which is clearly evident from enhanced foreign investments in Indian real estate and infrastructure, particularly from pension funds. So yes, the positive impact is very much a reality in realty.’’
So which are the realty spaces that are attracting foreign investors? Kunal Moktan, co-founder and CIO at propertyshare.in, a fractional property ownership platform is of the opinion that: the government has pro-actively watered down the FDI policy in order to encourage foreign investors to participate in the real estate sector especially in the completed and leased commercial and retail space.
Majority investment is in the built-up office segment and land/development sites (for end use commercial, residential or mixed). There is also a small amount of FDI coming into built-up retail, warehousing and hospitality, as per Real Capital Analytics (RCA), a New York-based authority on realty markets that tracks deal, trends and investments in commercial real estate market across the globe.
Commercial office and retail have been the biggest beneficiaries of FDI as foreign pension funds like CPPIB, GIC, Qatar Investment Authority and alternative investment funds like Blackstone have been chasing rent-yielding commercial real estate projects, adds Moktan, one of the three founding members of Blackstone Real Estate Partners’ India venture. He helped Blackstone, the world’s largest realty fund with $100 billion assets under management globally, invest and manage $1 billion of equity across commercial, residential, hospitality and logistics in India. Lee Kim Tah Holdings, CESMA International Pvt Ltd., Evan Lim, and Keppel Land from Singapore, Salim Group from Indonesia, Edaw Ltd., from USA, Emaar Group from Dubai, IJM, Ho Hup Construction Co., from Malaysia etc are some of the international firms who have already working with Indian realty developers.
Tracking the FDI trail
In 2005 India had amended its existing norms to allow 100 per cent FDI in the construction business. This allowed entry of foreign funds into the country’s commercial and residential sectors. It also encouraged several large financial firms and private equity funds, like Blackstone, to launch exclusive funds targeting Indian realty mart.
In 2003-04, India received total FDI inflow of $ 2.70 billion, of which only 4.5 per cent was committed to real estate sector. In 2004-05 this increased to $ 3.75 billion of which, the real estate shares was 10.6 per cent. Again, in 2005-06, while total FDIs in India were estimated at $ 5.46 billion, the real estate share in them was around 16 per cent. A year after, the country attracted FDI of $8 billion, in which realty had a share of 26.5 per cent. The total FDI inflow in construction development sector between April 2000 and September 2015 was some $ 24.16 billion, as per DIPP statistics.
In 2015, the Modi government had introduced major reforms to the FDI policy for real estate. The centre had relaxed FDI norms in construction sector by removing the mandatory minimum restrictions of 20,000 sqm and investment of $5 million. That means even small and medium, developers now have access to foreign funds.
Foreign fund outlook for 2018
Indian realty sector is hoping for better times ahead, as far as the flow of FDI is concerned. The implementation of Real Estate (Regulation and Development) Bill, 2016 and introduction of REITs (Real Estate Investment Trusts) are expected to help the industry in a big way.
With various friendly gestures and policies of the government, the sector is expected to increase transparency, which is a big tickmark for investors’ criteria check sheet. If the things work as per expectations, 2018 should also see healthy FDI inflow into the country, predicts, global realty advisory firm, JLL.
As propertyshare.in outlook, the commercial, retail and hospitality sectors will continue to attract FDI in 2018 but residential will be a bit slower given the slowdown in demand and launch of new projects. “Increased transparency and accountability as a result of RERA as also taxation positives thanks to GST will surely make Indian real estate more attractive to global investors,’’ bets Naredco.