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With the government walking the talk on reforms and launching a slew of ground-up initiatives, the subcontinent’s real estate market is poised to scale new highs

August 2015

In February this year, when the USD 2 trillion Indian economy – growing at 7.5 percent – eclipsed China’s 7.1 percent rate of growth, it was no flash in the pan. Today, six months on, even as China is focused on staving a slowdown, India is on track to grow at nearly 8 percent – and aspiring to touch double digit growth in a couple of years. Driving the ambitious agenda, the country’s one-year-old National Democratic Alliance government, led by Prime Minister Narendra Modi, is pushing through a series of economic reforms and launching a slew of policy initiatives. These new programmes, which will be fuelled through government investments and executed in partnership with private players, are expected to meet the twin objectives of economic growth and public welfare.
Among the new plans rolled by the government are three key urban rejuvenation schemes launched in June this year that will have a direct and major bearing on the country’s real estate sector. The three proposals – creation of 100 smart cities, mission for urban transformation and housing for all – will entail an investment of USD 623 billion over the next 10 years, and will be a prime driver of the country’s real estate market in the years ahead.

Investment magnet

The burgeoning economy, the policy push for sustaining the growth and the huge potential for good returns on investment has opened the floodgates for the Indian real estate sector, with investments pouring in from across the world. Less than a month after the formal launch of the new initiatives, leading American private equity investor Warburg Pincus announced that it will invest USD 284 million for a minority stake in Indian real estate firm Piramal Realty.

Other fund houses such as Brookfield, Blackstone, Goldman Sachs, Xander and KKR have also been active in the past couple of months, and real-estate experts estimate that over USD 2 billion worth of foreign funds will flow into the Indian realty market this year alone. “The recent relaxation in norms like allowing 100% FDI for investment in completed assets and modification of the 3-year lock-in period have made the Indian real estate market much more attractive for international investors,” says Ramesh Nair, COO-Business & International Director at JLL India, adding that PE inflows are likely to more than double from the current USD 2 billion in a couple of years.

A significant change in the FDI norms now allows 100% investments in not only township projects, but also shopping complexes and business centres, allowing developers to sell completed malls and commercial buildings to foreign investors. “This will increase the volume of retail and commercial business, and with more projects qualifying under FDI, the refinancing business will also see a sharp rise,” says Nair.

The Indian realty sector as a whole – across the residential, retail, hospitality and commercial verticals – is slated to grow at 30% over the next decade, attaining a market size of around USD 180 billion by 2020.

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