Foreign Direct Investment Inflow

                                                                                         

A US $6-Billion Share For Indian Realty

The current year is bound to witness equity deals worth $30-billion (Rs. 1.32-lakh crores) in the pipeline, across all Asian realty markets, of which one-fifth i.e. $6-billion worth of investment will find its way into the Indian real estate market. However, this is lower than what Japan and China are expecting i.e. $9-10 and $6-7 billion, respectively.

Jones Lang LaSalle – property consultants, in their report confirm rising FDI in real estate will see an estimated $10-billion worth of foreign investment enter the Indian real estate sector, within the next 12-18 months.

While, most of the 1990s saw FDI worth $2-3 billion flow into the Indian real estate sector on an annual basis, there was an inflow of $5.6-billion in 2004 -2005, peaking at $7.2-billion in 2005 -2006, as more than a dozen overseas private equity firms, such as, Goldman Sachs, Morgan Stanley, JP Morgan and Blackstone Group came scouting for investment opportunities in the Indian real estate market.

And, it was only recently, Morgan Stanley clinched a $150-million Mumbai deal with Oberoi Constructions, while the Dubai’s Nakheel Group entered into a $10-billion deal with DLF for residential projects in Tier I and II cities.

Abhishek Kiran Gupta, Senior Manager – Research at Jones Lang LaSalle states a number of factors contribute to foreign investors beelining to Indian shores. Investors are attracted to the strong commercial property yields across metros, the high capital and rental value appreciation and the availability of quality supply in the country, according to him. As well, investor confidence in India’s growth story grows, as the fast-growing economy gets set to become the second-largest economy ahead of USA by 2050.

Truth to tell, the real estate sector will see great demand as strong IT / ITeS, banking, financial services and insurance (BFSI) and corporate demand drive the office sector, with the retail market expected to grow to approximately 35% from its the current 3% organised retailing, stands positioned at today.

Despite, entry barriers and low land bank availability, about 94% of capital investment in real estate is being deployed in Tier I cities of Delhi, Mumbai and Bangalore. As Gupta says: “This can be attributed to multiple reasons such as comparatively lower risk associated with these cities and developed Tier I real estate markets in terms of developers and occupiers. We expect total investments across Tier I cities to increase as a result of the growing demand in these locations in the next two to three years.”

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