For­eign Com­pa­nies Vy­ing for in­dian Realty Pie

Realty Plus - - Table of Content -

In­dia’s fast grow­ing econ­omy, ur­ban­iza­tion and re­cent pol­icy re­forms have made it one of the lu­cra­tive mar­kets for in­ter­na­tional com­pa­nies rang­ing from fi­nan­cial in­sti­tu­tions, re­tail­ers, man­u­fac­tur­ers to ar­chi­tects and prop­erty de­vel­op­ers. Sapna Sri­vas­tava analy­ses the trend.

IKEA the Swedish fur­ni­ture re­tailer is ready to open its first large for­mat store in In­dia within this year. UAE’S Lulu Group will in­vest $2 bil­lion in In­dia in the hospi­tal­ity, retail and food pro­cess­ing sec­tors. The Group’s in­vest­ments in the coun­try in­clude malls in Luc­know, Vishaka­p­atanam, Thiru­van­tha­pu­ram and Hyderabad. Sam­sung, one of the old­est and big­gest player in smart­phone mar­ket has also opened the world’s largest mo­bile fac­tory in In­dia that will dou­ble its pro­duc­tion ca­pac­ity. Chi­nese firm Dalian Wanda Group has com­mit­ted to in­vest $10 bil­lion to build a 13 sq. km in­dus­trial park in Haryana and Toky­obased con­glom­er­ate Su­mit­omo Cor­po­ra­tion is part­ner­ing with the In­dian firm Kr­ishna Group, to build around 5,000 con­do­mini­ums in Gur­gaon. From the world of ar­chi­tec­ture, in­ter­na­tional de­sign firms like Burt Hill, Breg­man+hamann Ar­chi­tects and Skid­more, Owings and Mer­rill Llp are set­ting up and ex­pand­ing their In­dia oper­a­tions to do more work in In­dia. Ac­cord­ing to In­dia Brand Eq­uity Foun­da­tion, In­dia’s rank in the Global House Price Index has jumped 13 spots to reach the ninth po­si­tion among 55 in­ter­na­tional mar­kets, on the back of in­creas­ing prices in the main­stream res­i­den­tial sec­tor. It is also ex­pected that In­dian real es­tate sec­tor will in­cur more NRI in­vest­ments in both the short term and the long term, led by Bengaluru as the most favoured prop­erty in­vest­ment des­ti­na­tion, fol­lowed by Ahmed­abad, Pune, Chen­nai, Goa, Delhi and Dehradun.

what is Mak­ing in­dia the hot spot for in­ter­na­tional in­vest­ment and de­vel­op­ment? The pol­icy changes that have in­tro­duced trans­parency, are the ma­jor fac­tors for In­dian real es­tate pro­jected growth of US$ 180 bil­lion by 2020. Of­fice space de­mand in the coun­try in­creased 23 per cent year-on-year in Jan­uary-march 2018 and pri­vate eq­uity in­flows in of­fice and IT/ITES real es­tate have grown 150 per cent be­tween 2014 and 2017. The hous­ing sec­tor is ex­pected to con­trib­ute around 11 per cent to In­dia’s GDP by 2020. Retail, hospi­tal­ity and in­dus­trial real es­tate are also grow­ing sig­nif­i­cantly side by side. Fur­ther­more, In­dia’s boost to in­fra­struc­ture has pro­pelled many global con­struc­tion and de­sign firms to foray in In­dia and set up their of­fices. The slump in com­mer­cial and res­i­den­tial con­struc­tion in de­vel­oped coun­tries such as the US, UK and oth­ers and in con­trast to the ris­ing de­mand for con­struc­tion fu­elled by in­fra­struc­ture and hous­ing short­age in In­dia are at­tract­ing in­vestors, de­vel­op­ers to de­sign­ers to flock to the coun­try to grab a share of the mar­ket. The In­dian ar­chi­tec­ture seg­ment is trans­form­ing and the eco­nomic growth has in­creased the de­mand for global stan­dard build­ings and in­fra­struc­ture. Thus, es­tab­lished in­ter­na­tional firms are mak­ing their pres­ence felt in the In­dian AEC (ar­chi­tec­ture, en­gi­neer­ing & con­struc­tion) sec­tor by ty­ing up with pri­vate de­vel­op­ers and gov­ern­ment agen­cies. The grow­ing as­pi­ra­tions of In­dian con­sumers and their ex­po­sure to global liv­ing trends, thanks to the wide­spread ac­cess to in­ter­net, are also the ma­jor fac­tors for for­eign brands, de­sign­ers, re­tail­ers, and e-com­merce play­ers to make a bee­line to tap In­dia’s grow­ing consumer mar­ket. This is not only driv­ing the need for qual­ity res­i­den­tial, grade - A retail malls and of­fice spa­ces but also the in­dus­trial and ware­hous­ing real es­tate. The in­vest­ments in ho­tel seg­ment too are re­sum­ing with strate­gic in­vestors, cap­i­tal­iz­ing on sin­gle as­sets due to lack of large size port­fo­lios.

in­dia is a Chal­leng­ing Mar­ket

• The for­eign in­vestors still have to grap­ple with In­dia’s bu­reau­cratic con­trols and pro­ce­dures to get the nec­es­sary clear­ances and ap­provals.

• The vast & di­verse de­mog­ra­phy of the coun­try re­quires huge R&D cap­i­tal and prod­ucts that can cater to the price sen­si­tive In­dian consumer mar­ket.

• Job cre­ation re­mains an is­sue across the coun­try and as the de­mand in all as­set classes of real es­tate are de­pen­dent on the pur­chas­ing power of the consumer, they get ad­versely im­pacted

• Real es­tate in In­dia is over­priced in some lo­ca­tions, mak­ing it a dull in­vest­ment op­tion. Thus low rental yield is a ma­jor chal­lenge for for­eign real es­tate in­vestors.

• De­lay in con­struc­tion of prop­erty due to var­ied rea­sons such as lack of funds, lit­i­ga­tion, fail­ure to pro­cure nec­es­sary li­censes, etc., also are a ma­jor con­cern for in­ter­na­tional prop­erty de­vel­op­ment com­pa­nies.

The sub­stan­tial need for global ex­per­tise and tech­nol­ogy and the per­ceived short­age of do­mes­tic tal­ent are en­abling the for­eign con­sul­tancy firms to take ad­van­tage of the in­dian growth story. in­vestors are par­tic­u­larly driven by the opening up of FDI norms and REITS reg­u­la­tions.

• In­fra­struc­ture sta­tus and tax cuts for the ho­tel sec­tor will go a long way in bring­ing in­ter­na­tional hospi­tal­ity chains in In­dia ben­e­fit­ing the other travel sub­sec­tors. • Lack of con­sis­tency in rules re­lat­ing to de­vel­op­ment of var­i­ous as­set classes like SEZS, hy­per­malls etc., dis­cour­age for­eign com­pa­nies to set shop in In­dia.

• Fre­quently chang­ing rules & reg­u­la­tions and gov­ern­ment poli­cies too need to be stream­lined to make real es­tate sec­tor at­trac­tive for for­eign in­vestor.

the strate­gic Roadmap for in­dia

Among many chal­lenges, In­dian gov­ern­ment has lately ad­dressed some of the sec­tor is­sues like abo­li­tion of a com­plex tax struc­ture with the im­ple­men­ta­tion of GST, re­duc­ing hous­ing stock pile-up by im­ple­ment­ing the RERA and en­abling ease of busi­ness to some ex­tent with ‘Make in In­dia’ and FDI & REIT re­lax­ations. The new reg­u­la­tory en­vi­ron­ment in In­dian real es­tate needs to sus­tain it­self and cre­ate greater ac­count­abil­ity for de­vel­op­ers to im­prove the chances of at­tract­ing for­eign in­sti­tu­tional in­vest­ments. For the first time, In­dia has jumped 30 po­si­tions in World Bank rank­ing to be­come the top 100th coun­try in terms of ease of do­ing busi­ness this year. The in­dus­try expects fur­ther re­forms to im­prove in­vestor con­fi­dence and be­come the most favoured in­vest­ment des­ti­na­tion glob­ally. There­fore, steps like im­proved co­or­di­na­tion be­tween States and the Cen­tral gov­ern­ment, faster project clear­ances, in­fra­struc­ture de­vel­op­ment, ap­pro­pri­ate in­sti­tu­tional frame­work for dis­pute-res­o­lu­tion, etc. are needed to min­imise the hur­dles to in­vest­ing in In­dia and in­crease In­dia’s share in global cap­i­tal in­vest­ment & FDI in­flow.

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