Foreign Investments Back In India’s Real Estate

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Foreign investments into India’s real estate rebounded after a two-year lull, indicating revival in a sector that’s among the largest job creators for the economy.

Foreign direct investment in construction development, including townships, housing and built-up infrastructure, stood at Rs 2,453 crore ($385 million) in April-December 2017—up 250 percent from Rs 703 crore ($105 million) in the year ago-period, according to data from the Department of Industrial Policy and Promotion.

A raft of measures are behind the revival. The last year and a half saw a housing law that protects the interests of buyers, demonetisation, the goods and services tax and crackdown on benami property (or property held via proxy). They were aimed at hobbling the shadow economy and widening the tax net.

The measures may’ve had short-term negative impacts, but they also encouraged the inflow of foreign funding, said Shobhit Agarwal, managing director and chief executive officer of property consultancy firm Anarock Capital. “Foreign funding always reacts favourably to signs of increasing transparency, accountability and financial discipline.”

The entire real estate sector got investments worth Rs 30,000 crore, including from domestic and overseas investors, through the year to March, according to a report by real estate services firm Cushman and Wakefield.

Most of the fresh investment went into commercial real estate and infrastructure. The country’s buoyant top back office service providers sector continues to attract heightened interest from foreign investors who are building a portfolio of rent-yielding assets, Cushman and Wakefield said in a report for highlighting a rise in private equity inflows into the property market. That’s altering the ownership pattern of office stock in major cities, it said.

Private equity investments in the sector for the quarter ended March was Rs 8,500 crore ($1.3 billion), according to the report. Part of it came from overseas private equity firms.

Investors from Japan, U.S. and China have tied up with domestic developers to enter (or plan to enter) the Indian realty market, said Anshul Jain, country head and managing director, Cushman and Wakefield India.

They include Blackstone, GIC, Brookfield Asset Management and the Canadian Pension Plan Investment Board. Blackstone’s private equity funds have invested $3.5 billion in India till date. CPPIB has a wide array of investments in India, its latest being $142 million in an investment platform with developer Phoenix Mills Ltd.

 A pedestrian carries a child across a road in front of residential apartment buildings in Palava City on the outskirts of Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
A pedestrian carries a child across a road in front of residential apartment buildings in Palava City on the outskirts of Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Affordable Housing In Focus

Residential sector too has attracted overseas investors, according to Anuj Puri, chairman of Anarock Property Consultants. Prime Minister Narendra Modi’s efforts to root out black money has given them confidence.

A sudden ban on the Rs 500 and Rs 1,000 currency notes put stress on cash-rich real estate sector, and sales and new launches plummeted. Demand has started picking up only now. Most of the new opportunities are in affordable housing, where the government allows subsidy on home loan interest for buyers with income of up to Rs 18 lakh.

The residential segment has attracted even the likes of sovereign funds that are sponsored by governments, Puri said, citing the example of the CPPIB and Singapore’s GIC. “They are more active in the affordable segment. That’s where the demand is.”

Yet, the office sector will continue to garner a large chunk of the investments, Agarwal said.

The residential sector, however, will get a fillip after the government allowed 100 percent foreign direct investment under automatic route in the construction development segment, which includes townships, real-estate broking services and housing.