Could returning FDI equity script realty sector’s revival?
As India rises to greater prominence on the world map, global corporates are more eager than ever to participate in the country’s growthstory. AGDPgrowth rate of 7% plus, apopulation base of over 1.2 billion and an urbanization rate northwardof30% 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-neededcapital but also critical expertise has flowedin. Nodoubt, thesubprime crisis of 2008 led to adeclineinforeignfundinflows; however, today the situation has turned andcertainly looks upbeat.
The real estate sector was among the main beneficiaries of the opening up of FDI into the countryandhastransformedsignificantly as a result. In the past few decades, it has metamorphosed from an unorganized, closely- held business to an increasingly organizedandacorporatized one. The recent structural changesincludingdemonetization, the crackdown of Benamitransactions, RERAandGST 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, accountabilityand financial discipline.
Global investors certainly approve of the new regime, and their applause for the Government’s moves has taken the best possible form– namelyamassive 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 Departmen- The rise in FDI equity inflows indicates that global players are onceagainwillingtobackthesector.
In the past few years, debt transactions more or less ruled themarket, asinvestors werenot sure of whether equity investments would fetch the desired returns. In fact, not a few investors got burnedinthepreviously unregulated market environment. ThereturnofFDIequityis not 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.
Therisein FDIisaleadindicator of a positive future for the Indian real estate sector – which, as everyone knows, is a critical componentofthecountry’secon-
Takingdecisive punitive actions against defaulters to send a strong message to global investors that the watchdog is alive andkicking. Providingmorebenefits and incentives, and easier processes to seek larger foreign investments. Whiletheimprovementintheeaseofdoingbusiness ranking from 130 to 100 is a big positive, the Government has to maintain a consistent upward learningcurveandcommunicate newevolutionary developments to theworld. Wideningtheinvestment avenues by bringing the benefits of organization to more real estate sub-asset classes such as rental housing development, student housing and senior citizenliving. Onlytimewilltellifthe revival of FDIequityinflows into the construction development sector is sustainable andwill culminate in a full-fledged comeback. Themacroeconomicfundamentals 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