Foreign Companies Vying for indian Realty Pie
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.