Investments in Real estate Market in India
Today the real estate market in India is at an all time high. With the emergence of multinationals, the demand for office and residential space has increased many folds. But the investors of this market still consider India as an emerging market for the restrictive laws relating to Foreign Direct Investment (FDI) and earning profit is difficult in India’s property sector. Sensing this, Government has liberalized the laws relating to FDI in February 2005. With this now Non Resident Indians (NRIs) or Overseas Corporate Bodies (OCBs) can invest upto 100% in the sector and also in real estate industry and construction ventures. A foreign Company with 60% NRI holding is considered as OCBs. But still Government has certain rules in place for purchasing commercial property by foreign company i.e. property for business purposes.
Although the investment period is restricted to minimum of 3 years for the FDI to avoid speculative trading but the real charm is that the investment is now allowed in the smaller projects of 25 acres, (which was 100 acres earlier). The hassle free and the easiest way to enter this market is by buying an investment fund. There are many attractive and transparent funds from reputed investments houses. It is expected that with the liberated laws, real estate investment fund will emerge soon. But care should be taken before acquiring any land and legal help should be taken at every stage of buying process.
The increase in global real estate investment interest in India is evident from the fact that US real estate billionaire, Sam Zell has termed India as world’s lowest cost housing market and is planning to make substantial investment. Further, Dubai based Emaar Group has already invested USD 100 million in Hyderabad. And companies from Canada, Malaysia, Tokyo, UK, and Singapore have all committed millions of dollars in India. This is all the result of easing of laws along with impressive property price growth.
The local factors contributing to this booming real estate market is the rise in demand for the property for sale and rent. With India’s population raising to over million the potential for growth in property demand is huge. In addition to this the growth of IT sector and outsourcing in particular geographical areas has led to the demand for office and housing space in those areas. With the increase in the buying power of these professionals and the availability of housing loans has made it possible for them to afford their own houses. The increase in demand has also inflated the property prices.
Before 2005 there was only 1.1% of foreign direct investment in India’s real estate sector. But after Government easing the controls and restriction on foreign ownership of immovable property and also on terms of ownership, there is a strong inward inflow of foreign investment interest in India. Government of India is keen to attract investment in this sector but in favor of control investment. As a result the local builders are earning around 30-50% of rate of return on capital and property prices has increased in excess to 20%. Cities like New Delhi, Mumbai and Banglore are mainly attracting these investments.