Could re­turn­ing FDI eq­uity script re­alty sec­tor’s re­vival?

Hindustan Times (Chandigarh) - Estates - - HT ESTATES - Shob­hit Agar­wal let­ters@hin­dus­tan­times.com The au­thor is MD & CEO – ANAROCK Cap­i­tal

As In­dia rises to greater promi­nence on the world map, global cor­po­rates are more eager than ever to par­tic­i­pate in the coun­try’s growths tory. AGDP growth rate of 7%plus, a pop­u­la­tion base of over 1.2 bil­lion and an ur­ban­iza­tion rate north ward of 30% are irresistible in­vest­ment mag­nets, and real es­tate de­vel­op­ment re­mains a key fo­cus area.

In­dia opened its doors to FDI way back in the 2000s, and since then not only much-needed cap­i­tal but also crit­i­cal ex­per­tise has flowed in. Nodoubt, the sub­prime cri­sis of2008 led toa de­cline in for­eign fund in flows; how­ever, to­day the sit­u­a­tion has turned and cer­tainly looks up­beat.

The real es­tate sec­tor was among the main ben­e­fi­cia­ries of the open­ing up of FDI into the coun­try and has trans­formed sig­nif­i­cantly as a re­sult. In the past few decades, it has meta­mor­phosed from an un­or­ga­nized, closely-held busi­ness to an in­creas­ingly or­ga­nized and a cor­po­ra­tized one. The re­cent struc­tural changes in­clud­ing de­mon­e­ti­za­tion, the crack­down of Be­nami trans­ac­tions, RERA and GST may have had short-term neg­a­tive im­pacts, but they also en­cour­aged the in­flow of for­eign fund­ing which al­ways re­acts favourably to signs of in­creas­ing trans­parency, ac­count­abil­ity and fi­nan­cial discipline.

Global in­vestors cer­tainly ap­prove of the new regime, and their ap­plause for the Gov­ern­ment’s moves has taken the best pos­si­ble form–namely amas­sive in­crease in the FDI eq­uity in­flows, es­pe­cially into the de­vel­op­ment of self-suf­fi­cient town­ships, hous­ing and sup­port­ing in­fra­struc­ture.

A quick look at the statis­tics by the Depart­men­tal of In­dus­trial Pol­icy & Pro­mo­tion (DIPP) in­di­cates that just in nine months of FY 2017-18, FDI eq­uity in­flows into con­struc­tion de­vel­op­ment rose by around 250%over the lev­els of FY 2016-17.

This sec­tor has also been a key re­cip­i­ent of dol­lar-based FDI eq­uity, ac­count­ing for around 7% of the to­tal in­fu­sion be­tween April 2000 to De­cem­ber 2017.

Of course, the FDI eq­uity that flowed into this sec­tor be­tween April-De­cem­ber 2017 does not beat the high lev­els wit­nessed in 2012-13 and 2013-14. How­ever, the de­ci­sive re­turn of for­eign fund­ing has cer­tainly turned the tide for the con­struc­tion de­vel­op­ment sec­tor, which was swim­ming against the neg­a­tive cur­rents of sub­dued de­mand and dis­rup­tive pol­icy changes over the past few years.

OTHER POS­I­TIVES TO THIS RE­VIVAL

The rise in FDI eq­uity in­flows in­di­cates that global play­ers are once again will­ing to back the sec­tor.

In the past few years, debt trans­ac­tions more or less ruled the mar­ket, as in­vestors were not sure of whether eq­uity in­vest­ments would fetch the desired re­turns. In fact, not a few in­vestors got burned in the pre­vi­ously un­reg­u­lated mar­ket en­vi­ron­ment.

The re­turn of FDI eq­uity is­not only a big pos­i­tive to the sec­tor which will help to im­prove de­vel­op­ers’ lever­age ratios – it is also a re­sound­ing vote of con­fi­dence in the sec­tor.

The rise in FDI is a lead in­di­ca­tor of a pos­i­tive fu­ture for the In­dian real es­tate sec­tor – which, as ev­ery­one knows, is a crit­i­cal com­po­nent of the coun­try’s econ­omy.

The In­dian real es­tate sec­tor is the coun­try’s sec­ond-largest em­ployer, has thou­sands of al­lied in­dus­tries and presently con­trib­utes 8-9% to the coun­try’s GDP.

Nev­er­the­less, we can­not for­get that thisis a re­vival, not at idal wave of growth. In other words, the Gov­ern­ment has to en­sure that the ex­u­ber­ance does not fade away.

HOW CAN THIS BE DONE?

Tak­ing de­ci­sive puni­tive ac­tions against de­fault­ers to send a strong mes­sage to global in­vestors that the watch­dog is alive and kick­ing.

Pro­vid­ing more ben­e­fits and in­cen­tives, and eas­ier pro­cesses to seek larger for­eign in­vest­ments. While the im­prove­ment in the ease of do­ing busi­ness rank­ing from 130 to 100 is a big pos­i­tive, the Gov­ern­ment has to main­tain a con­sis­tent up­ward learn­ing curve and com­mu­ni­cate new evo­lu­tion­ary de­vel­op­ments to the world.

Widen­ing the in­vest­ment av­enues by bring­ing the ben­e­fits of or­ga­ni­za­tion to more real es­tate sub-as­set classes such as rental hous­ing de­vel­op­ment, stu­dent hous­ing ands enior cit­i­zen liv­ing. Only time will tell if the re­vival of FDI eq­uity in­flows into the con­struc­tion de­vel­op­ment sec­tor is sus­tain­able and will cul­mi­nate in a full-fledged come­back.

The macroe­co­nomic fun­da­men­tals are surely en­cour­ag­ing, and if the lat­est pol­icy ini­tia­tives stand strong and re­sult in even more reg­u­la­tory re­fine­ments in the fu­ture, we will cer­tainly see the next wave of de­vel­op­ment an­nounce the ar­rival of In­dia 2.0 to the world.

IN­DIA OPENED ITS DOORS TO FDI WAY BACK IN THE 2000S, AND SINCE THEN NOT ONLY MUCH­NEEDED CAP­I­TAL BUT ALSO CRIT­I­CAL EX­PER­TISE HAS FLOWED IN

MINT/FILE

The re­alty sec­tor is the coun­try’s sec­ond ­largest em­ployer

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.