Budget 2016: Impact of FDI in real estate sector and future expectations

Real Estate sector has been stagnant and unregulated for years now. Rising prices of property, delayed construction, no clarity on Foreign Direct Investment and REITS, ghost buyers are some of problems crippling the growth of the sector. But with the various ambitious projects announced by the new Modi Government there’s a silver lining. As per recent government data, economic growth reached 7.4% in the second quarter of the current financial year, riding on a spike in manufacturing and a pickup in investment.

Where it stands?
Globally positioning India as an investment destination and improving India’s diplomatic and trade relation, Narendra Modi’s foreign stints have helped India attract more FDI. From the nations he visited during the financial year 2014-15, India received FDI of USD 19.78 billion. Moreover, FDI in India increased by 27% in 2014-15 to USD 30.93 billion, said Anuj Puri, Chairman and country head at JLL India in his blog.

But a recent FICCI survey of the year 2015 (Impact of FDI reforms in the Indian real estate sector) shows how disoriented the sector still is. Though there has been overall growth in FDI in the sector, FDI in construction development sector has declined over the past few years. The following table shows that.

Overall sentiment happy

Still revival hopes are high! The real impact of latest FDI liberalisation measures on foreign investments in Indian real estate will be reflected over a period of time, the industry feels, as per the survey.

1. Industry is happy and satisfied with current FDI reforms in construction development sector

Majority are happy with the recent steps of the Central Government and are satisfied with the policy development.

2. Increased confidence and optimism in industry towards future flow of FDI in real estate

Industry has shown high level of confidence and optimism towards future flow of foreign capital into realty sector. They feel that FDI reform measures will certainly increase flow of FDI into realty sector in coming months.

3. Commercial & Retail and Residential real estate will gain significantly from the liberalisation of FDI in the sector

4. 100% FDI under automatic route in completed projects

100% FDI under automatic route in completed projects for operation and management of townships, malls/shopping complexes and business centres is a significant step taken by the Government, the industry feels.

What more should be done in the upcoming budget 2016?

1. Quick implementation of the Real Estate Regulatory Bill (RERA) to enable the realty market to attract FDI

2. Government of India should bring more clarity over the entry and exit norms and processes to be followed by investors.

3. Both Centre and State must work together to ensure removal of bottlenecks for faster implementation of reform measures for foreign investments in real estate.

4. Government of India could also consider a reduced lock-in-period applicable for FDI investments from 3 years currently to 1-2 years to further enhance investor interests.

The real estate industry is maturing. There is a wedge between demand and supply of housing. However, with increased market transparency, this demand/supply mismatch can offer immense opportunities for developers and investors alike. But a well regulated and consolidated industry is not a near future dream.

(Image credits: FICCI, indiatimes)