If you had to guess how much FDI India’s real-estate sector attracted, what percentage would you guess? As low as your number might be, the correct answer is likely lower.
Amid the country’s complicated legislation around FDI, persistent tangles of red-tape within the realty sector, persistent problems with land acquisition and delayed project delivery, foreign direct investment in townships, housing and built infrastructure in India has dropped from $1.66 billion in 2010-11 to $0.77 billion in 2014-15 and a troubling $0.11 billion dollars in 2015-16, according to a FICCI report from 2015.
Meanwhile, of the more than $610 billion invested in real-estate by global investors worldwide in 2016, India got only 1.08%, or $6.6 billion, says a report by realty consultancy JLL India.
This is troubling because FDI helps create world-class infrastructure and generate employment and revenue for the country, says Chintan Patel, partner at consultancy KPMG India.
“Inflows have been dropping since 2014,” adds Venkatesh Gopalakrishnan, president for business development and chief investment officer at development company Shapoorji Pallonji. “Between 2000 and 2014, inflows were good and were spread across the country evenly.”
Though in recent times the government has been trying to ease the entry of foreign investors, the exit isn’t easy, Patel adds. “Also, there are worries that every time the government changes at the centre, a different set of policies will emerge.”
WHERE WE STAND
Only a few developers in India have been able to consistently attract funds from abroad over the years, says Ramesh Nair, COO – business and international director at JLL India.
“One of the main reasons for this reveals itself in the data from CREDAI [the Confederation of Real Estate Developers’ Associations of India], which states that the number of developers who have consistently delivered projects across all three phases of the Indian residential real-estate cycle [boom, slump and recovery] over an 11-year period stands at a measly 124 out of 11,500 registered with CREDAI. There is lack of integrity in the completion of projects among developers,” Nair says.
Another reason is the lack of discipline in the market. “From buying the land to getting the flat ready, there are several authorities involved,” says Amit Oberoi, national director of knowledge systems at realestate consultancy Colliers International India. “We lack a concrete governance body that can make all the rules and grant all the approvals. It is also not easy to track at what stage of development a project is, making investors think twice before investing in the country.”
The investors who came to India a few years ago did not benefit from the market as they expected, adds Mir Jaffer Ali, founder and CEO of PropUrban, a real-estate investment advisory based in Bangalore. “Hence they and those that have followed in subsequent years are less willing to invest in the country. They fear fluctuations, uncertainty and the lack of transparency in the market.”
WAYS TO PLAN BETTER
So which are the countries getting it right?
The US is the top destination for large international institutional real estate investors, followed by Germany at #2 and the UK at #5, according to a January report by the US-based Association of Foreign Investors in Real Estate (AFIRE).
One thing they all have in common is some form of single-window clearance and excellent road and transport infrastructure. “Both factors will cause real-estate to flourish in any country,” says Ali. “A single window, for instance, doesn’t mean the answer is yes. It just means the answer comes quickly so you can move on, amend plans etc, and that is crucial.”
In India, hope comes in the form of REITs (Real Estate Investment Trusts) and RERA, the Real Estate Regulatory Authority.
Realty consultancy Cushman & Wakefield India estimates that by 2020 India will have REIT- eligible commercial properties across seven of the top property markets in India. REITs are very prevalent in markets such as the US and Singapore and they allow a commercial property to be listed with a stock market and make it available to a larger pool of investors from around the world.
RERA, meanwhile, could finally become a reality this year and help introduce transparency and regulate the sector. “Global investors could then reaffirm their trust in our market,” says Oberoi.