FDI funding in real estate market is need of the hour
Nov 20, 2013
Source : The Times of India


MUMBAI: Real estate is one of the fastest growing sectors in India and plays a momentous role in its overall progress and development. Having significant linkages with other sectors and associated industries, real estate has the capacity to generate income with a multiplier effect.

Real estate has a significant contribution in overall GDP of the country and going forward its share is expected to increase from 6.35 per cent in 2014 to 13 per cent in 2025. Moreover, its contribution towards social up gradation and employment generation needs no second thoughts. After agriculture, it is the second largest employment generating sector in India, employing more than 9 per cent of the total workforce.

Subdued global economic scenario coupled with domestic problems like falling exports, sagging GDP and depreciating rupee have made the business environment quite challenging. Recent directives from Reserve Bank of India restricting exposure of banks to real estate lending, discontinuation of subvention schemes have further restricted the funding sources for most developers. Under this scenario foreign direct investment looks like an attractive proposition for developers. Though, government allows FDI in real estate, the rules and regulations related to the size of investment, lock-in period and exit routes, restricts the free flow of capital. While specific safeguards in some cases may be understandable, such riders should not be cumbersome.

Apart from providing much needed funding for the developers, Foreign Direct Investment will also help in making the real estate sector more organised, resulting in inflow of much needed funds. The corporatisation will also ensure more transparency in the sector. Involvement of multinational funds in the sector will also result in increasing the exposure of domestic developers to global best practices and international quality standards, which will eventually benefit the end buyers.

In the current scenario foreign investors are cautious towards their investment decisions in India and are carefully evaluating current volatility in currency markets, impact of certain regulations like land acquisition and real estate regulation bill.

Investors today are extra vigilant and are keen to invest only in those countries where they get certainty about their investment along with desired returns. Offering incentives to FDI funded projects, coupled with clear and firm policies would help in re-building foreign investors’ confidence and revive their interest in India. This would be beneficial for all stakeholders, including the Government, since the dollar inflows would help augment India’s foreign exchange reserves and curb its current account deficit.

The basic fundamentals of Indian economy continue to be strong and require government to provide necessary support in terms of policy framework, which will give positive impetus to foreign funds with regards to their future investments in real estate projects in India.

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