Investments in the Indian Real Estate Market
With the entry of many multinationals into India, the demand for office and residential space has increased considerably. For many investors India is still considered an emerging market as the laws relating to Foreign Direct Investment (FDI) in the India property sector is very restrictive. Realizing this, the Government has liberalized the laws relating to FDI in February 2005. Resident Indians (NRIs) or Overseas Corporate Bodies (OCBs) can now invest up to 100% in the sector and also in real estate industry and construction ventures. A foreign Company with 60% NRI holding is considered as OCBs.
Currently the investment period is restricted to minimum of 3 years for the FDI to avoid speculative trading but the real beauty is that the investment is now allowed in the smaller projects of 25 acres as opposed to 100 acres earlier. The easiest way to enter this market is by buying an investment fund. It is expected that with the liberated laws, real estate investment fund will emerge soon.
US real estate billionaire, Sam Zell has termed India as world’s lowest cost housing market and is planning to make substantial investment. Further, Dubai based Emaar Group has already invested USD 100 million in Hyderabad. And companies from Canada, Malaysia, Tokyo, UK, and Singapore have all committed millions of dollars in India. This is all due to the relaxation of property investment laws and impressive property price growth.
The increase in India’s local population has also contributed to the rise in demand for property whether for sale and rent. In addition to this the growth of IT sector and outsourcing in particular geographical areas has led to the demand for office and housing space in those areas. The increase in the buying power of these professionals and the availability of housing loans has made it possible for them to afford their own houses. The increase in demand has also inflated the property prices.
There was only 1.1% of foreign direct investment in India’s real estate sector prior to 2005. With the easing of controls and restriction on foreign ownership of immovable property and also on terms of ownership, there is a strong inward inflow of foreign investment interest in India. As a result the local builders are earning around 30-50% of rate of return on capital and property prices have increased in excess to 20% with particularly strong investments in New Delhi, Mumbai and Banglore.