August 29, 2006

Foreign Investment’s Role In Indian Realty

The question of the entry of foreign investment in Indian real estate has assumed importance. Government relaxation of norms in this regard notwithstanding, there are doubts whether everything is going fine. Dr BP Dhaka, COO, Parsvnath Developers Limited, Sushil Mantri, MD, Mantri Developers and Ramesh Sanka, Group CFO, DLF Universal Ltd, elaborates their views on the future prospects, good or bad, of FDI in this area of activity or about the kind of impediments that still prevail. Q. How conducive is Indian real estate market today for foreign investment? BPD: India is in the midst of a real estate boom. The sector has witnessed significant transformation in the past decade from small unorganized family-owned realtors to large scale organized real estate developers and urban infrastructure conglomerates. Real estate companies are tying up with the big business entities in retail, entertainment, hotel, and service industries like BPO and technology parks. Customer awareness reflected in preferred style of living, the inclination of large number of corporate houses to enter the realty market and policy support by the Centre makes environment just appropriate for FDI to pitch in. SM: I feel the Indian market is still not ready because, after the closure of our deal with Morgan Stanley which made foreign investments worth Rs. 300 crores in our firm following government relaxation of norms relating to FDI, no other such deal has taken place at the company level in the entire country. It is only for specific projects that a few deals have been made. I think it may take some time for developers to enter into similar deals, as much transparency is required in the entire procedure. I think our Indian real estate companies are not yet ready for that because every real estate company operates with several companies, and all this reorganizing and restructuring may take some time and only then will companies opt for FDI. The future doesn’t look bright for small or even medium players in the market. Only the big ones will survive. Medium players will need to go in for tie-ups with one another in order to exist. We were also looking at this opportunity of becoming a larger entity and had two options --- either go in for strategic partnership with some foreign developer or opt for financial assistance. Confident that we had enough strength to execute the managerial capacities, we chose the second path. RS: India’s real estate market today for foreign investment is very conducive. The transparency level has improved. Today, more and more players, like Infosys, are foraying into this sector. Now the market is in an organized form. Real estate has got recognition as an industry. The change and the transparency brought in by the government in foreign investment policies has opened doors for NRI to invest in the indian realty market. ------------------------------------------------------------------------- source://