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Foreign Direct Investment in the Indian Realty Sector

The Indian real estate industry saw massive growth since the Government of India allowed foreign direct investment in the sector in 2005. Lured by high returns, the sector saw entry of many foreign real estate investment firms. During 2007 and early 2008, the industry achieved new heights. However, it suffered a great deal due to global economic slowdown in the middle of 2008. Foreign direct investment inflow plummeted and the industry experienced a downturn. As the economy slowly began to gain momentum, funds inflow began to increase and today the Indian realty sector is one of the most lucrative segments for investors.Get more details about

Foreign Direct Investment – The Major Growth Driver

Foreign direct investment has been the major growth driver for the country’s real estate sector. According to a report by advisory firm Ernst & Young and Federation of Indian Chambers of Commerce and Industry, the sector has attracted foreign investment close to Rs 100,000 crore between April 2011 and July 2013. The report also projected the industry’s size close to US$ 78.5 billion in the financial year 2013 and US$ 140 billion by financial year 2017.

Government Initiatives

Realizing the immense potential of the sector, Indian Government is considering major changes in foreign direct investment norms to boost flow of funds. The Urban Development Ministry has proposed exemptions of all restrictions including minimum area norms for project development for all real estate firms whose foreign ownership is less than 50%. Proposal to allow real estate companies to sell undeveloped plots through automatic route subject to clearance by the Foreign Investment Promotion Board is also under consideration.

The current foreign direct investment rules do not allow a company to sell undeveloped plots, which forces them to stay with unviable projects. The ministry has also suggested a non-resident investor in a real estate firm to sell his shares to another non-resident investor free of cost. This would ease liquidity problem of foreign investors largely and boost their confidence.

Government’s initiative to set up a regulatory authority to protect consumer’s interest will also increase investment in the sector. The Confederation of Real Estate Developers’ Association of India believes that such a step would lift foreign investment by at least 20%. It feels that funds would be mainly come from the US, Gulf nations and European countries.

The Way Forward

India has a great potential to entice huge foreign investment into the real estate sector. In developed countries, the sector has reached to a point of saturation. Therefore, global players are looking at developing economies such as India for investments. However, the industry should look forward towards increasing transparency and improve project execution to increase inflow of foreign capital. One must solve land acquisition delays at the earliest to attract global firms to set up their operations in the country.

Despite several challenges, the Indian real estate industry is quite upbeat. In coming days, opportunities in the sector will attract more foreign investment that will help the industry to prosper.

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