Real Estate: An emerging industry for FDI in India

According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in the country has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 24.67 billion in the period April 2000-December 2017.Here are a few major investments in this sector:

• In February 2018, DLF bought 11.76 acres of land for Rs 15 billion (US$ 231.7 million) for its expansion in Gurugram, Haryana.

• In February 2018, Japanese conglomerate Sumitomo Corporation announced its US$ 2 billion partnership with Krishna Group to develop real estate projects in the country.

• KKR India Asset Finance Pvt Ltd has invested over US$ 500 million in residential real estate projects in India in 2017, taking its total investments in real estate projects in India to US$ 1 billion. 

100% FDI under the Automatic Route

The recent announcement of the government’s decision to offer 100% FDI via automatic route will give a required impetus to the real estate broking services in India and it will receive a significant boost in foreign investments. 

Consolidation in the Real Estate Sector

According the some real estate industry veterans, RERA and other regulatory reforms have paved the way for the consolidation in the real estate market. The consolidation in the industry is primarily observed in the developer’s as well as property consultant’s market. Consolidation is essential for the efficiency of a real estate sector, as it is going to lead businesses to make their focus on the core operations and at the same time it will make them to be innovative. In addition, to make the real estate market more efficient and competitive, the next major step has been taken by the central government to offer 100% FDI via automatic route.

In India, property consultant a.k.a. broker plays an important role in the real estate market by considering the basic as well as lament requirements of the potential customer. With the help of the property consultants, one will not only able to find a perfect match but also one will be able to negotiate and provide assistance throughout the whole process of deal-making.

Earlier, many foreign companies would get an entry in the Indian market via a local Indian partner, because of the cap on FDI. However, this shareholding model might change, as many foreign companies can now entirely hold the property consultancy firm.

Advantages of the FDI policy in the real estate sector 

Introduced by RBI, here are a few advantages of the FDI policy which is as follows–

1. Transparency: Growing competition would lead to better efficiencies and innovations in the sector. This will allow transparency, the reduced timeline of projects; build trust, and offers better experience in buying a house, property or land.

2. India as Investment Destination: Those foreign companies who are looking for geographic expansion in their brokerage services will see India as a new investment destination.

3. NRI investments: India will improve the scope and possibilities of NRI investors in the real estate market of India.

When the sector becomes more and more organized, the small and local brokers may not be able to scale up their services and eventually fade out from the system. There would also be a lot of consolidation in the market with the small players joining hands with the more established ones.  However, there would still be a lot of gaps left in brokerage service sector which can be capitalized by the new players.

Conclusion

Well, the World Bank has stated that private investments in India is expected to grow by 8.8 percent in FY 2018-19 to overtake private consumption growth of 7.4 percent, and therefore drive the growth in India's gross domestic product (GDP) in FY 2018-19. Policies are made so that it can improve the overall health of the business considering the requirements of all stakeholders and 100% FDI under the automatic route is one such move taken by the Government which will not only bring clean money into the system, but it will also pave the way for the entry of some of the foreign investments into the Indian real estate sector.