Real Estate heads for Golden Period

Foreign investors are convinced of a certainty on return on investments from the Indian real estate which is also winning the confidence of banks following over 80% consolidation from the shakeup of positive but disruptive policies.

Giving these views, experts highlighted investments by foreign funds including sovereign and pension funds in the Indian real estate sector, which is winning banks confidence in winning loans.

The sector has recovered from its once tarnished image by speculative developers following the implementation of the Real Estate Regulation Act (RERA) and the Goods and Services Tax (GST). It is becoming more and more transparent as such policies are implemented and streamlined, said the experts at a Singapore forum on “Opportunities in India Real Estate” held 1 April 2019.

Foreign funds are looking at investment in India, following recent investments by Canadian Pension Fund, Qatar-funds, GIC and Temasek of Singapore, said Sanjay Dutt, Chairman of Federation of Indian Chambers of Commerce and Industry Real Estate Committee who led a business delegation to the forum and Singapore-based investor meet 1-3 April 2019.
“Now we have the right policies in place,” said Dutt, pointing out that developers have track records to show, investors can understand the regulatory and taxation environment, study demand and work out currency risks.

Investors can make an informed decision and hedge their dollar to manage currency risks, he said of the system that is being shaped up by policies such as RERA, GST and new income tax among others.

“A lot of investors are now convinced that there is a certainty of investment returns in India and potentially higher returns given the risk of emerging market,” said Dutt who is Managing Director & CEO of Tata Realty & Infrastructure Ltd, one of the top real estate corporation in the country.

“Certainty has become more stronger because of this ability to make an informed decision,” Dutt pointed out.

However, Dutt stressed that India’s massive infrastructure development including real estate, require international financing as the trillions of dollars required just cannot be funded by internal sources.

Government policies support international investments in infrastructure projects, some in a structured way and others being more flexible such as 100 Foreign Direct Investment in the real estate.

After RERA and GST implementation, major developers have changed their business strategies and are working in corporate style with emphasis on time delivery projects.

“This gives the banks confidence to extend loans to the sector,” added Mohit Goel, Chief Executive of The OMAXE and part of the delegation.

When RERA and GST are absolutely streamlined and dealings are made transparent over the next two to three years, Goel believes the banks will start funding developers’ land acquisition just as these lenders are financing contracts for material supplies to the sector.

He sees the real estate industry in a strong position in the coming decade, with 10-12 developers in each of the country’s four zones – North, East, West and South. Such an industry structure will be big and strong players in-charge of the entire market, leaving weak and speculative players out, at best carrying out ancillary businesses with the industry.

Over 80 per cent of the real estate industry has consolidated following the positive but disruptive policies such as RERA and GST, according to Goel.

India had an estimated 2,500 developers, most as speculators and land holders in hope of profiteering from plot sales.

But landscape has changed.

“The land owners are now approaching developers for a very attractive venture models which makes it asset-light for developers,” added Getamber Anand, Chairman and Managing Director of ATS Infrastructure Ltd.

“Price of land has rationalized over the last five years because of these disruption and changes by the positive policies,” he said of the industry’s biggest challenge in gathering good quality land for commercial, residential and industrial developments.

“I see businesses are taking off very aggressively. We are in the election year and if we get a very stable government which we are expecting, the business will boom for the next 10 year,” he said after addressing investors on “Opportunities in Indian Real Estate”.

Anand urged foreign investors to partner with the right developer as 100% FDI is allowed in the Indian real estate.

“I would advise funds to do a due diligence on their promoter. More than feasibility of the project, you must see the blood line of the promoter,” stressed Anand.

The industry has begun to see serious equity infusion by foreign funds, he said, calling on other institutions to start dialogue with “the people they think they like to partner with for the next 10 years”.

“The next 10 years will be a golden period for anybody who is associated with real estate in India,” assured Anand who has spent over three decades in the real estate business.

“The public sector banks are flushed with capital and in a very healthy state. Funds are flushed with capital, but it is only that people are little skeptical about identifying the right partner to deploy money,” said Anand.

The high interest rates make project financing painfully expensive, he pointed out.

But he called on banks and financial institutions to review their lending rates which varies from banks’ 12% to Non-Banking Financing Service companies’ 15%.

“We want it down to a single digit at around 9%,” he said of the need to support developers as pace of development accelerates.

FICCI and Enterprise Singapore, a state agency promoting Singapore investors globally, organized the Indian delegation meetings and the forum with Singapore-based investors. fiinews.com