Property market to get more FDI
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Foreign players are investing in a big way in real estate, expecting a continued boom in the market owing to rising demand, says an Assocham study.
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SKY IS THE LIMIT: Huge buildings, such as this one, are springing up in cities all over the country because of the ever-increasing demand for built-up space. The real-estate boom is also fuelled by foreign investment.
Foreign investors' growing appetite for the booming Indian property market will enable the real-estate sector to increase its share of foreign direct investment (FDI) by at least 10 percentage points in 2006-07, a study by the industry body Assocham says.
The study, "Future of real-estate investment in India," projects that in 2006-07, the total FDI in India would be about $ 8 billion (one dollar is nearly 45 rupees), of which the share of the sector is estimated at 26.5 per cent. In 2005-06, its share was $ 5.46 billion, amounting to 16 per cent.
Rising demand for office space in the information technology (IT) and information technology enabled services sectors is prompting overseas investors to pump in money into India, the study says. The overseas investments will also be finding larger space in special economic zones (SEZs) and shopping malls.
The study forecasts that the Indian real-estate market will grow more than three times to reach $ 60 billion by 2010 from the present $ 16 billion, of which the share of foreign investments will be in the range of $ 25-28 billion.
The study attributes the massive flow of FDI into India's property market to China's real-estate market reaching its saturation level. Besides, foreign investors prefer to invest on freehold land, available more freely in India. The sector has evoked the interest of a number of foreign investors, such as Royal Indian Raj, Blackstone, Goldman Sachs and Emmar properties, which have announced plans to collectively invest over $ 6 billion.
Royal Indian Raj International plans to invest $ 2.9 billion, followed by the Blackstone Group and Goldman Sachs with $ 1 billion each and Emmar Properties with $ 800 million.
The other investments include those from Pegasus Realty $ 150 million; Citigroup Property Investors $ 125 million; Lee Kim Tah Holdings $ 115 million; Salim Group $ 100 million; Morgan Stanley $ 70 million; and GE Commercial Finance Real Estate $ 63 million.
The Indian property market, growing at 30 per cent a year, is offering high returns to investors.
Stringent clauses
The study, however, says India should have attracted far more FDI, leveraging the internal rate of return on capital investment offered by the sector.
"The stringent clauses are still restricting free flow of FDI into Indian real estate markets," it says, adding lack of flexibility in the policy is a constraining factor.
Stating that the capital values of commercial office space have increased by 40 per cent in last two years, the Assocham study says that office property market in India will witness a further boom owing to huge demand.
The requirement for office space will grow to over 19 million sq. ft in 2006-07 from four million sq. ft in 1999-2000. By 2010, IT and business process outsourcing sectors alone will require 200 million sq. ft of space in major metros.
In the residential segment, in which capital values have risen by 25 per cent to 40 per cent in the last two or three years, the demand-supply gap is expected to touch 19.9 million housing units by 2010.
The study says that the number of malls in Kolkata, Mumbai, Bangalore, New Delhi, Hyderabad and Pune will grow from the present 50 to 300 by 2010.
The annual capital appreciation in retail space is between 20 per cent and 35 per cent. "The retail market in India has been growing due to increasing demand from retailers, higher disposable incomes and shortage of quality space," it says.
Organised retail segment is expected to grow from a mere two per cent to 20 per cent by the end of the decade.
New destination
The Assocham study terms SEZs property as the new destination for real- estate investors. Real-estate developers are developing nearly 130 SEZs, or half the total area of these zones.
The real-estate sector is expected to receive a further boost with the introduction of real-estate investment trusts (REITs).
"The establishment of REIT industry will provide the much-needed capital infusion to India's underdeveloped real-estate market," it says. The REITs will provide an opportunity to small investors to access commercial property returns, which stand at about 10 per cent a year.
It can also foster improvement in investors' portfolios by diversifying the investment base and increasing the stability of income sources. — PTI
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