A staggering $90 billion by 2015 - that's where real estate in India is expected to be, as per Merrill Lynch in its latest report.

As realty experts rejoice and real estate builders in India put in place their plans for a slice of the big pie, the RBI sounds a note of caution. The apex bank is apprehensive that the capital inflows that will pour into real estate in India should conform to FDI norms. 

As the economy takes bigger steps, the demand for quality infrastructure and real estate will only multiply. At stake is the massive workforce that real estate employs - clubbed with construction and facilities, it is the 2nd largest employer in India. Moreover, through backward and forward linkages, 250 ancillary industries are dependent on it. Any hike or dip in real estate therefore, has a cascading effect on these industries and the workforce.

With this in view, real estate in India needs to be supported with concessions and sops, to enable it to contribute to at least 3 to 6% of the GDP, as against just 1% currently.

To finance the real estate projects, debt and equity can be used to advantage. Banks, non-banking financial corporations and external commercial borrowings (ECBs) could be sourced for funds. As for equity, investments can be made in the project directly or as an entity. FDI can be directed to finance the construction and development of residential or commercial projects. Returns on commercial spaces especially are very profitable, assuring 11 to 12%, with Greenfield projects pulling in between 20 to 25%. In fact, ASSOCHAM has projected a return of 26% for 2007 on investments in real estate in India as against 16% in 2006.

The impressive turnout by investment companies putting their faith in real estate in India is enlisted in the table below, compiled by Jones Lang LaSalle’s report for the 1st quarter of 2007:

Investor	Entity	Location	Investment Type and Sector	Stake (%)	Investment Amount (USD million)
Evolvence India	Emaar-MGF	Delhi	Entity level	n/a	41
Evolvence India	CCCL (Consolidated Construction Consortium Ltd)	Chennai	Entity level	n/a	12
IL&FS	Ansals Properties & Infrastructures (APIL)	Delhi	SPV	49	29
HDFC Realty Fund	Ansals Properties & Infrastructures (APIL)	Delhi	SPV, commercial IT Parks	33	n/a
Nakheel Group	Parsvnath	Pan India	Entity level, residential and commercial	50	550
Nakheel Group	DLF	Gurgaon, Mumbai and Pune	Entity level, residential	50	10,000
Morgan Stanley Special Situations Real Estate Fund	Oberoi Constructions	Mumbai	Entity level, mixed use	10.75	152
Samsara Capita	IDEB Projects	Bangalore	Entity level	n/a	33
TPG-Axon Capital	DivyaSree Developers	Bangalore	Entity level	n/a	100
Vornado Realty	Gurgaon SEZ	Delhi	SPV, industrial	50	n/a
Starwoods Hotels & Resort	Brigade Hotels	Bangalore	SPV, hotels	n/a	n/a
Citigroup Venture Capital International Maurtius Ltd	Indu Projects	Hyderabad	Entity level	9	33
Goldman Sachs	Unitech	Delhi, Mumbai and Bangalore	SPV, mixed use	33	66
Source: Jones Lang LaSalle Research, 1Q07

Of late, investment companies in India have been seeking the Alternate Investment Market (AIM), London to raise capital for large-scale real estate projects. FDI through this source has so far come from Trinity, Eredene, India Hospitality Corp, Ishaan Real Estate Corp (K.Raheja), Unitech Corporate Parks, and Hirco (Hiranandani).

There has much debate on the real estate scene of late are we still in the boom period, or has the boom gone bust? Is it a price correction or a slowdown? To keep speculation and inflation at bay, the Finance Ministry stepped in with precautionary measures to pre-empt uncontrolled growth of the property market in India.

Apart from internal controls on banks and loans, the Ministry stipulated that if foreign institutional investors wished to invest in pre-IPO placement of real estate companies, such an investment would be treated as foreign direct investment.

This would perforce ensure the lock-in period applicable to FDIs, reducing the scope of speculation and pinning down more responsibility on the investor. Another protective move by the Securities and Exchange Board (SEBI) requires financial appraisal of the companies on the basis of their development plans, and not on the value of their land banks.

The valuers of these properties could soon be asked to register on the SEBI. The real estate industry in India has evolved from being a construction enterprise to a city building industry, and through large scale infrastructure projects, a nation building behemoth.

As it turns to more professional methods of governance and acquires transparency and strict compliance to standards and policies, it offers amazing opportunities for building wealth for all institutions, industries and individuals connected with it.

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