India has historically been a non-traditional investment market, particularly in the case of real estate. Yet, there are signs that this could now be changing. The real estate industry in India is expected to reach a market size of $1tn by 2030, up from $120bn in 2017, and to contribute 13% of the country’s GDP by 2025.
Retail, hospitality and commercial real estate are growing significantly in India, providing the much-needed infrastructure to accommodate the needs of a country that is developing rapidly and expanding in all areas. According to data released by India’s Department of Industrial Policy and Promotion (DIPP), the development sector in India has received FDI equity inflow of around $25bn in the period April 2000 to December 2018. Together with the implementation of the Real Estate (Regulation and Development) Act 2016 (RERA), which requires all projects to have approvals before entering the market (reducing the number of projects that are inclined to fail or that are corrupt), this means that the increasing flow of FDI into Indian real estate is encouraging greater transparency.
An Open Invitation
In order to attract funding, developers have therefore revamped their operations to meet due diligence standards, and are encouraging both domestic and foreign investors for the cash injection that the industry needs. Among the wave of foreign investors are Singapore’s sovereign wealth fund, GIC, which acquired a 49% stake in property developer Provenance Land in August 2018, and Blackstone Group, which acquired a 50% stake in Indiabulls Real Estate in March 2018. Both these entity-level acquisitions are focused on India-based companies that acquire land for development – assets that can either be banked for future consideration or immediately built on.
Furthermore, GIC and Blackstone Group are among the increasing number of foreign investors that have acquired millions of square feet of commercial space and are holding it for the long term. The ability to be patient for 10 years, or even longer, will allow them to exit their investments when they see a fall in the capitalization rate, as well as when the rupee appreciates against the dollar.
Further fostering investment in Indian real estate is the approval of the real estate investment trust (REIT) platform by the Securities and Exchange Board of India (SEBI). This will allow all kinds of investors to access India’s real estate market: when REITs are formed and listed, they will help firms to yield the wholesale to retail premium.
Investing for the Future
Investors both domestic and foreign will have built on experience and relationships that will allow them to yield rich returns once the Indian economy and rupee turn stable – as well as in the future if these firms decide to increase their bets in a well-regulated and transparent real estate market.
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