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The way forward to US investment in Indian realty

Posted on by Track2Realty

By: R K Chopra, Secretary General, Indo-American Chamber of Commerce

IACC, Indo American Chamber of Commerce, RK Chopra-IACC, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyTrack2Realty Exclusive: The opening up of retail in multi-brand and single brand is likely to push up the demand for more space throughout the country.  On a rough estimate, this sub-segment needs, over the next few years, close to 20 million sq feet of space, which have to be built in accordance with the international standards.

Creation of such additional space with the state of the art facilities and comforts would require an investment of US$ 15 billion in the next few years.  That could be realized only through direct investment by foreign companies or through joint ventures.

That is not all.  The latest in the mall technology dictate that its growing power needs could be met by tapping non-conventional sources like solar energy.  Micro-grids, which are now being popularized in India for tapping alternative energy in large conglomerates like shopping centres, malls, multiplexes can help running on both conventional and non-conventional energy and at the same time enable the entity to feed the excess energy generated to the main grid.

This would be an additional source of income for such establishments besides reducing their dependence on conventional sources of energy.  The US energy companies, which are world leaders in smart grid and micro grid technology, can be successfully a partner in this effort.

RK Chopra-IACC, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyGovernment’s plan to promote SEZ’s was a conscious effort to create world class manufacturing hubs in the country.  On account of the slowdown, this imaginative scheme was put in the backburner.

Many important companies, which indented to commence SEZs have either vacated the field or postponed their launch due to a variety of reasons.  There are some US companies, which are interested in investing in these areas.

They may naturally look forward to have some assurances from the government, such as hassle free land and approvals, relaxed labour laws, easy financing options, relaxed norms for buying land, easy exit routes, inputs at affordable prices, and of course, a sustained and long term policy.

The realty sector is expected to grow at 30 per cent annually to become a US$180 billion industry by 2020.  To achieve the target, a focused, flexible industry friendly policy is needed.

The US continues to be the largest investor in India.  To motivate them more in the overall Indian industrial segments and particularly in the realty sector, it is important to fast track the proposed bi-lateral investment treaty between the two countries, which should spell out the easy investment norms, particularly in the real estate sector. That will be a win-win situation for both countries.

What deters US investment in Indian realty

Posted on by Track2Realty

By: R K Chopra, Secretary General, Indo-American Chamber of Commerce

IACC, Indo American Chamber of Commerce, RK Chopra-IACC, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyTrack2Realty Exclusive: Why the US investors are shying away from investing in India? Primarily, it is the fear of change in policy as they had experienced in the past.  Lack of significant growth is also another factor that is working against their investment in the Indian realty stocks.

The high interest rates, equally high levels of premium, absence of a uniform policy in housing, recent difficulties in the land acquisition etc. are factors, which are affecting the investment and lack of enthusiasm among the PE investors to focus on India.

We have to evolve a stable policy and at the same time that policy should be transparent and comparable to those in other countries.  This can renew the interests of the foreign investors in the realty stocks and bring in the required resources for boosting the sector.

Private equity funds invested close to US$ 1.7 billion in 2011.   However, FDI in real estate in 2011-12 (April-January) has reached only 492.5 million.  Given proper encouragement and direction, this could go up to US$ 5 billion by 2014.  Of course, our financial system should be re-tuned to absorb the excess inflow of dollars on account of the relaxed PE investment norms.

The other area is to relax the rules for foreign investment in projects beyond townships and satellite towns. Such projects entail huge investment and acquisition of huge tracts of land, which is cumbersome and dilatory in the present situation.

RK Chopra-IACC, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyMuch awaited land acquisition bill is still under debate.  Moreover, foreign investors like to test the waters with smaller investments before getting into bigger ones.  It is important to ensure early passage of the bill and also to allow equity participation in smaller housing projects.

There is an economic rationality for such policy since some of the real estate companies in India are facing huge resource crunch.  Joint ventures and collaborations will help them to shore up their bottom lines.

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Realty as drivers of US investment in India

Posted on by Track2Realty

By: R K Chopra, Secretary General, Indo-American Chamber of Commerce

IACC, Indo American Chamber of Commerce, RK Chopra-IACC, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyTrack2Realty Exclusive: The multiplier effect of real estate sector and its capacity for generating employment is well recognized.  It is estimated that the sector contributes close to 6 per cent to the gross domestic product (GDP) of India and is estimated to be growing at 20 per cent per annum.

Though realty sector eludes a definitional clarity, and it is widely held that there are four sub sectors, such as housing, retail, hospitality and commercials. It is also significant that the sector stimulates demand in over 250 ancillary industries such as cement, steel, paint, brick, building materials, consumer durables and so on.  Therefore, it is considered to be the fourth largest sector among the manufacturing segment.

The year 2005 was a watershed for the real estate sector in the country.   The government changed the policy to allow Foreign Direct Investment (FDI) in this sector.  There was a boom in the investment and developmental activities.

The sector not only witnessed the entry of many new domestic realty players but also the arrival of many foreign real estate investment companies including private equity funds, pension funds and development companies triggered  by the high returns on investments.

RK Chopra-IACC, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyThe industry achieved new heights during 2007 and early 2008, characterized by a growth in demand, substantial development and increased foreign investments.  However, by mid-2008, the effects of the global economic slowdown were evident here too, and the growth was sluggish.

FDI inflow into real estate dropped significantly.  In the financial years 2007-08, 2008-09 and 2009-10, the housing and real estate sector attracted FDIs of 8.9%, 10.3% and 11% respectively, of the total FDI flows in India.  However, the financial year 2010-11 saw a mere 6% FDI in this sector.

There are a number of studies and working papers that have identified realty sector as a driver for promoting US investment in India.  Historically, the US had shied away from investing in India in this sector on account of the government restrictions and lack of policy clarity.  Even while the government allowed and attracted investment in the infrastructure sector, the response from the US investors was lackadaisical.

Admittedly with the opening up in part of the realty sector, there has been a spurt in PE investment from the US.  But investment in the project side was not forthcoming, even though 100 per cent FDI is allowed for developing townships and settlements.  FDI up to 100 per cent is also allowed in hotel and tourism sector through automatic route.

Introspection is needed as to what held back the FDI. Real estate policy of India lacks clarity.  Subsequent to the opening up of the sector in 2005, there were misplaced fears among certain sectors that the policy is being widely misused for pumping in PE investment and excessive inflows has had distortionary effect on the economy. This has led to amendments to the FDI policy on real estate that have created unwanted apprehensions and confusion in the minds of global investors.

Further, lack of consistency in rules relating to development of SEZs, increased monitoring of the sector by regulatory agencies, tightening of rules for lending to the real estate sector etc. had acted as stumbling blocks for real estate sector in India in general and inflow of FDI into the country in particular.

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