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NEW DELHI, JUNE 5: Realty equity deals worth $30 billion (Rs 1.32 lakh crore) are in the pipeline for the current year across all Asian markets. One-fifth of these investments ($6 billion) will find their way into the Indian real estate market alone. This, however, is still lower than what Japan and China (expected to garner $9-10 and $6-7 billion, respectively), are expected to get.
According to a report by property consultants Jones Lang LaSalle on rising FDI in real estate, an estimated $10 billion foreign investment is expected to enter the Indian real estate sector in the next 12-18 months.
For the most part of the 1990s, FDI inflow into the Indian real estate sector was at $2-3 billion a year. In 2004 -2005, it was recorded at $5.6 billion, and reached its peak in 2005 -2006 at $7.2 billion.
More than a dozen overseas private equity firms such as Goldman Sachs, Morgan Stanley, JP Morgan and Blackstone Group are looking at investment opportunities in the Indian real estate market.
Morgan Stanley recently closed a deal worth about $150 million with Oberoi Constructions in Mumbai. Meanwhile, the Nakheel Group in Dubai entered into a $10 billion deal with DLF for residential projects in Tier I and II cities.
According to Abhishek Kiran Gupta, senior manager, research, JLL, there are many reasons why foreign investors are flocking to India. “Among others, investors are attracted to the strong commercial property yields across metros, the high capital and rental value appreciation and the availability of quality supply in the country.Also, there has been an increase in confidence in India’s growth story among investors, with the fast-growing economy set to become the second-largest economy ahead of the US by 2050,” he says.
In fact, the growth of the real estate sector is expected to continue with strong IT/ITES, banking, financial services and insurance (BFSI) and corporate demand driving the office sector. The growth rate for the retail market is expected to be around 35%, with organised retailing currently at a mere 3%.
In spite of entry barriers and low land bank availability, about 94% of capital investment in real estate is being deployed in Tier I cities of Delhi, Mumbai and Bangalore. “This can be attributed to multiple reasons such as comparatively lower risk associated with these cities and developed Tier I real estate markets in terms of developers and occupiers. We expect total investments across Tier I cities to increase as a result of the growing demand in these locations in the next two to three years,” says Gupta. |