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Indian Realty Demand Amongst Overseas Investors Beginning To Revive

The Real Estate Scenario

The Indian real estate sector seems to be on course to some revival in 2010 after the global recessionary onslaught. An estimated 25 million non-resident Indians (NRIs) living in 130 countries have remitted US$ 52 billion upto December 2009. According to the World Bank report on Migration and Development Brief, India topped the list of countries in remittance flow followed by China and Mexico. One of the major sectors attracting inflows from NRIs has been Indian realty. Real estate analysts and property consultants such as Knight Frank India suggest that in the wake of the economic downturn faced by the Gulf region, most overseas Indian investors are looking forward to investment opportunities in real estate in India especially in Tier-2 cities, backed by growth in infrastructure in South Indian cities of Bengaluru, Chennai and Hyderabad, apart from luxury destinations in the National Capital Region, Mumbai etc.

According to housing finance companies (HFCs) and banks offering home loans to NRIs/PIOs in Dubai, there has been an unexpected surge in demand for residential property across Indian cities. One of the factors necessitating such demand is the return of the NRIs back home owing to uncertainties in jobs overseas, impacted by the global slowdown. Most of these NRIs are looking for home loans as they are unable to get loans locally due to the tight liquidity situation across US. Also, another factor that is currently boosting overseas Indians’ confidence is the government’s foreign direct investment (FDI) policy that permits FDI up to 100 per cent from foreign/NRI investor under the automatic route. Indian banks have begun to offer attractive NRI housing schemes to accommodate the housing needs of NRIs. Interest rate is only slightly costlier for NRIs – 0.25 per cent to 0.50 per cent more than Indian residents. The Reserve Bank of India (RBI) had earlier relaxed the provisioning norms for the real estate sector last year, giving banks the freedom to restructure real estate loans.

Recent Developments

A few developments in the Indian Realty scene have been encouraging and helped in turning the tide. Some public offerings (IPOs) such as DB Realty have met with good response from investors. With recovery gathering pace and the stock market giving good returns, several realty firms are trying to garner funds for expansion as buyers are slowly return. They expect to raise funds either through PE funding or from capital markets through initial public offerings. Currently, around 16 real estate and infrastructure firms’ public issues, including Emaar MGF and Sahara Prime City, are in the pipeline in the market.

The real estate arm of ETA Ascon Star will launch an integrated township project near Chennai in 2010 as it looks to tap strong demand for property in India.  Further, a revival in the realty sector has added to investor confidence, though the trend took more time to become apparent in Bangalore than in Mumbai. This trend has helped both Sobha Developers and DLF consolidate their holdings and offer more value to investors. Red Fort Capital, a private equity fund (PE) focussing on India’s real estate sector, has an allocation of over US$ 400 million for the Indian real estate market . The PE has already made more than 10 investments so far in India into residential, commercial, logistics and hospitality assets.

The government—having already mandated Energy Conservation Building Code (ECBC) norms for state-owned buildings for reduction in emissions by buildings—is also likely to make it mandatory for private commercial buildings and luxury residential by 2011, according to government officials. This would definitely help Indian real estate companies create and offer more value for money for all investors alike.

Sudhir is an India-born property consultant offering advice to overseas investors/Indians

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