Global firms in talks to invest in Indian real estate

Source: Business Standard

International property players and equity firms from Malaysia, Singapore and other countries of Asia and West Asia are checking out the India market, following the government move to relax foreign investment norms in the real estate sector.

Many developers have even started discussions with foreign firms for a possible venture, according to two independent consultants tracking this space. “But, the deals are likely to be struck only after 6-12 months, FDI won’t start coming in immediately,” one of the consultants said.

A CEO of a leading developer based in Gurgaon confirmed that his company is talking to many foreign investors for launching their next few projects. This CEO, who refused to be identified, said: ”We have received a few proposals and we are evaluating. Our only concern is that foreign investors want fixed returns over a period of time, which might be difficult seeing the current situation of the realty market.”

The sector is sitting on a huge pile of inventory and with low sales and cash crunch, the FDI relaxation has come at the right moment, according to experts.

CBRE’s South Asia Chairman & Managing Director Anshuman Magazine said:”The real estate and infrastructure industry is starved of funds. This announcement will widen the base of investors, especially mid-sized financial institutions. It will also encourage new development projects in prime areas of large cities and in tier II towns.”

Recently, the government had relaxed norms for FDI including a reduction in the minimum built-up area required to 20,000 sq m from earlier 50,000 sqm and the initial capital was also halved to $5 million. Under the rules, 100% foreign investment is allowed in real estate projects.

Anuj Puri Chairmanand Country Head,JLL, a real estate consultancy firm said: “The government’s decision to relax FDI rules in the construction sector literally comes in the nick of time for Indian real estate. Meanwhile, developers continue to reel under high levels of debt, even as the channels of funding have shrunk. The easier rules will help faster completion of projects delayed by a squeeze on funds due to elevated debt levels.”

The government’s objective is to improve FDI inflows in the country. The realty sector had received FDI of about $22 billion in 2000-2013, almost 11% of the total foreign direct investment into the country during the period. But following a slowdown, foreign investment in the sector has slowed down– from $3.1 billion in 2011-12 to $1.3 billion in 2012-13 and $1.2 billion in 2013-14. During April-August of the current financial year, $446 million has flowed into the sector.

Also, the projects which commit at least 30% of the total cost for low-cost affordable housing would be exempted from minimum built up area and capitalisation requirements with a three-year lock in. According to the revised norms, projects with at least 60% of the FAR/FSI (floor area ratio/floor space index) for units of carpet area not over 60 square metre will be considered as affordable housing projects. Also, 35% of the total number of units should be constructed with carpet area of 21-27 sqm for the economically weaker sections.

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