Realty blues make investors see red...

Written by Economy Bureau | Mumbai, Sep 27 | Updated: Sep 28 2007, 04:31am hrs
The real challenges for em

Against investment projections of $10 billion, only $1 billion was finally invested in India's real estate sector during 2006-07. This was largely due to regulatory and transparency issues, high property valuations, lack of opportunities fitting investment profiles, limited execution skills of developers and bureaucratic delays. These concerns are hampering actual investment into the real estate sector.

According to Ernst & Young's report tilted Indian Real Estate- Grwoth & New Destinations, real estate in India continues to remain an opaque sector where investors face challenges in obtaining credible and reliable market information. The country still does not have a defined repository of land transaction and ownership details which is easy accessible to individuals and investors. "Information asymmetry between developer and investor has made defining investment thesis a difficult exercise for investors. Title issues, land use plan, clarity on applicable floor space index (FSI), under reported transaction and lack of credible information on regulatory aspects and their variation across different cities are some of the key information gaps faced by the investors currently," the report said.

Unlike other matured markets such as Europe and some of the Asian countries including Singapore and Malaysia, real estate products in India have not evolved with time. Investors have been restricted to a portfolio of limited assets. Most developers follow the patterns which are well accepted in the market and do not attempt to differentiate their product offerings. This restricts the assets available to the investors evaluating investment options.

The report noted that limited availability and clarity in terms of exit options in the current scenario is one of the major hurdles faced by the foreign and domestic investors, considering an investment into Indian real estate. The present options are limited to initial public offering (IPO) and trade sale. However, traditionally, developers in India have not shown much inclination towards the IPO routes. "Trade sale has emerged as a popular exit route. Trade sale by first set of investor who entered in projects in early stages of projects after opening of FDI, to the new set of investors who are preparing to enter India today is expected to emerge as a practice in the near future. Absence of real estate investment trusts in the country has been another deterrent for the investors," the report added.