As an economic slowdown prompted most of the real estate companies in India to shelve hundreds of mall projects nationwide, the new foreign investment in retail guidelines will energise firms to look at malls again. Meanwhile, companies and experts say the real impact of the liberalisation can be seen in the next two to three years.
?Its definitely a shot in the arm for developers,? says Anshuman Magazine, managing director for South Asia for property consultant CB Richard Ellis. However, he says it could take at least two years since many of the global retailers will watch out for various factors including political opposition for retail foreign investment in India to the worsening fiscal situations in the US and Europe.
Santhosh Kumar, chief executive for operation at Jones Lang LaSalle, says property companies in India had planned to develop around 700-800 malls three years ago, when retail was hyped as the next sunrise sector. However, after a global economic meltdown impacted sentiments in India as well, most of the projects were shelved.
?Many of the developers would rethink on the projects that were put on hold as there will be a huge demand now,? says Kumar. For example, DLF would revive Mall of India project in Gurgaon that was put on hold over the years, he says.
Rajeev Talwar, group executive director for DLF, says the company would have to take a call on reviving the mall that was planned as India?s largest.
?We just cannot keep it as a swimming pool,? Talwar said referring to a gigantic pit that was dug before the economic slowdown prompted the company to put the project on hold.
Talwar said DLF would wait and watch to see how things shape up after the liberalisation of the retail sector even as he says the FDI policy will boost retail real estate in the medium to long-term.
?Obviously now there will be greater traction,? says Talwar, adding that Walmart and Carrefour would be looking at larger big box formats in India and developers would have to cater to their demands.
India?s retail sector was hit by slowdown in late 2008, that not only forced the nascent modern retailers to down shutters of thousands of stores but also put their expansion plans on the back-burner. Occupancy in malls declined and rentals dropped too.
According to industry experts, only about a quarter of about 200 malls currently operational in India are either profitable or not losing money. However, in the last one year or so, retailers have been coming out of their shells to expand again that has led to supply of about 6 million sq ft of mall space in the first half of 2011. Malls in South Delhi?s Saket and Vasant Kunj saw rentals appreciating by anywhere between 9% to 12% compared to 2010, CB Richard Ellis said. The FDI policy will give further boost to the sector.
?The demand for quality retail real-estate will certainly grow as more and more players will invest in this sector,? says Munish Baldev, head of retail for Unitech reacting on the FDI in retail decision. ?Apart from the direct impact on job-creation in the real estate development sector, this move will also have a spiral effect in the construction ancillary industry with greater demand for supply of construction material, work-force to build the malls,? he adds.