W hile the Indian realty sector has been witnessing a slowdown over the last couple of years, a slew of initiatives such as the Housing for All by 2022, The Smart Cities Mission, Real Estate Regulatory Act, Benami Transactions Act, Goods and Services Tax, to name a few, have attracted a number of foreign investors to the market.
As per India Brand Equity Foundation’s (IBEF) recent real estate report, in 2017, nearly US$4.2 billion worth of investments are expected in India’s real estate sector, and during April 2000–March 2017, the total cumulative inflows in the construction development sector accounted for 7.32% of total inflows into the country.
Experts explain how Foreign Direct Investment (FDI) into the sector has been on a decline for the last four years, but due to the above mentioned policies, Private Equity (PE) investments have been rising during the same duration. “While other investors were cautious during this phase of transition, owing to a series of policies and market transformations, focused PE investors saw this phase an opportune time to fund projects/developers at attractive returns expectations,” says A. Shankar, National Director, JLL India.
Some good policies
The relaxed guidelines of FDI investment (as of November 2015) have made numerous properties — completed or under construction — eligible for investments from other countries.
Recent policies like the Benami Act, have curbed the flow of black money, and have brought in much-need transparency, attracting global investors such as New York-based Blackstone which has invested about $2.7 billion in real estate projects, says Jaxay Shah, President, CREDAI.
The IBEF report highlights the Blackstone Group’s announcement in April 2016 to acquire a majority stake in Mphasis Ltd; the deal would be the largest acquisition by Blackstone in the country.
With affordable housing being given infrastructure status, the segment is now caught the attention of investors in Japan and China. The Smart City project too is attracting foreign players, says T. Chitty Babu, Chairman & CEO, Akshaya Homes. “In an effort to ease the tracks for foreign investors, the Government also has decided to grant them permanent residency in India. This move is expected to revive residential and commercial categories in the long run,” adds Babu.
Top investors
Mauritius has been the top investor, due to the tax arrangement between the two governments, and Singapore remains another key source of FDI, the second largest after Mauritius. PE investments (equity) from the US, Singapore and Hong Kong have been top three sources of investments during the last four years (2013-16), accounting for close to 75% of total foreign PE inflows.
Interestingly, India’s growing engagement with Japan has resulted in rising share of FDI coming from the far-east nation, making it the third largest source as of last financial year 2016-17. As of February 2017, Maruti Suzuki is planning to acquire land for dealership expansion plans at key strategic locations across the country.
In April 2017, the global PE firm KKR & Co. LP invested about USD148.73 million in three real estate projects: about USD74.37 million in a township project of Bhartiya City Developers in Bengaluru, USD29.74 million in Signature Global’s affordable housing project in Gurugram, and USD44.62 million in three projects of city-based Prince Foundations.
In December 2016, Canadian Pension Plan Investment Board (CPPIB) agreed to buy up to 49% stake in Phoenix MarketCity, Bangalore — a retail asset owned by Mumbai-based developer, The Phoenix Mills Ltd., over a period of three years (Source: ibef.org).
D Kishore Reddy, Founder Chairman of Bengaluru-based Mana Projects, highlights the States witnessing a massive upsurge in FDI inflows: Delhi (USD 6,780 million), Maharashtra (USD 5,650.1 million), Karnataka (USD 1,876.1 million), and Tamil Nadu (USD 1,876.1 million). Other states include West Bengal, Gujarat, Haryana, Andhra Pradesh, Kerala, and Uttar Pradesh.
Chennai investments
The three projects at Prince Foundations with investments from KKR & Co. LP include a ₹500 crore uber luxury residential project at Egmore, two residential projects at Porur and Sowcarpet respectively, says a representative at the company.
One of the largest PE deals — signed earlier this year — was also from the city. Shriram Properties signed a ₹2,290 crore deal with global PE firm, Xander Group, and with the deal, Xander acquires 100% interest in Shriram’s Gateway SEZ in Chennai for ₹1, 250 crore, with a further commitment of ₹,040 crore towards expansion of the IT SEZ. “The deal involves 1.7 million square feet of an occupied and operational SEZ, and a partnership with Shriram Properties to deliver the under construction 1.9 million square feet.
Shriram will continue to develop the 58-acre integrated township and own the residential and retail components comprising 2.6 million square feet, while Xander will have the ability to develop an additional 1 million square feet of office space,” says M. Murali, Managing Director, Shriram Properties.
Apart from RERA, he believes the decision to abolish Foreign Investment Promotion Board (FIPB) is a positive step. With Securities and Exchange Board of India (SEBI) allowing Foreign Portfolio Investors or FPIs to invest in units of Real Estate Investment Trusts (REITs), it will further increase investor confidence in the real estate market, he says.
