Monday, November 20, 2006: Foreign investors' growing appetite for the booming Indian property market will enable the sector to increase its share in total FDI inflow into the country by at least 10 per cent in 2006-07, a study by industry body Assocham said.

The study -- Future of Real Estate Investment in India -- projects that in 2006-07 the total foreign direct investments into India would be about eight billion dollars, of which the share of the real estate sector is estimated at 26.5 per cent.

In 2005-06, the share of the realty sector in the total FDI of 5.46 billion dollar stood at 16 per cent.

Rising demand of office space from IT and ITEs sectors is attracting overseas investors to pump money into India, the study says. The overseas investments will also be finding larger space in Indian SEZs and shopping malls.

The study forecasts the Indian real estate market to grow by more than three times to reach 60 billion dollars by 2010 from the present 16 billion dollars, of which the share of foreign investments would be in the range of 25-28 billion dollars.

The study attributed the massive flow of FDIs in India's property market to China's real estate market reaching its saturation level. Besides, foreign investors prefer to invest on freehold land, which is available more freely in India.

The sector has already evinced interest from a number of foreign investors, including Royal Indian Raj, Blackstone, Goldman Sachs and Emmar properties, who have announced their plans to collectively invest over six billion dollars.

Royal Indian Raj International plans to invest 2.9 billion dollars, followed by the Blackstone Group and Goldman Sachs with one billion dollars each and Emmar Properties with 800 million dollars.

The other investments, which are lined up include Pegasus Realty 150 million dollars, Citigroup Property Investors 125 million dollars, Lee Kim Tah Holdings 115 million dollars, Salim Group 100 million dollars, Morgan Stanley 70 million dollars and GE Commercial Finance Real Estate 63 million dollars.

The Indian property market, which is growing at 30 per cent per annum, is offering maximum return to investors.
The study, however, says India should have attracted far more FDI leveraging the internal rate of return on capital investment which the sector offers.

"The stringent clauses are still restricting free flow of FDI in Indian real estate markets," it says, adding lack of flexibility in the policy is a constraining factor.

Stating that the capital values of the commercial office space have increased by 40 per cent in last two years, the Assocham study says that office property market in India will witness a further boom owing to huge demand.

The requirement for office space will grow to over 19 million sq ft in 2006-07 from four million sq ft in 1999-2000. By 2010, IT and BPO sectors alone would require 200 million sq ft of space in major metros.

In residential segment, where the capital values have risen by 25-40 per cent in last 2-3 years, the demand-supply gap is expected to touch 19.9 million housing units by 2010.

The study says that the number of malls in Kolkata, Mumbai, Bangalore, New Delhi, Hyderabad and Pune will grow to 300 by 2010 as against the current 50.

The capital appreciation in retail space is about 20-35 per cent per annum. "The retail market in India has been growing due to increasing demand from retailers, higher disposable incomes and shortage of quality space," it says.

Source - http://www.hindu.com/thehindu/holnus/006200611200324.htm