Foreign Investors Flocking To Indian Markets

India is the world’s fastest growing major economy and ranks as the sixth largest. With a population of 1.34 billion and gross domestic product (GDP) valued at 2.59 trillion dollars, the country has significantly improved its ranking in ease of doing business and emerged as a preferred investment destination.

Many multinational corporations have set up IT hubs and manufacturing bases for domestic and export markets. This has led to ever-growing middle class families with high disposable incomes and changing consumption patterns wanting to invest in good quality residential real estate.

At the same time, India is witnessing a massive wave of urbanisation. Nearly 380 million people live in 8,000 cities and towns. There are 53 cities with a population of more than one million. By 2050, 60 per cent of Indians will live in urban areas. But the real estate market is not matured yet, like in developed countries.

Besides homes for all citizens, the country needs office and retail spaces backed with robust infrastructure facilities. Industry experts believe India needs to build 700 to 900 million square metres of urban space every year till 2030. This has generated considerable interest among foreign investors, particularly private equity fund managers, to invest in real estate projects.

A slew of policy measures and new regulations enabled India to witness capital inflows to the tune of 2.6 billion dollars in 2017. India ranked 19th among 73 countries that attracted cross-border capital into their property markets.

The United States, Canada and Singapore collectively contributed to 84 per cent of capital inflows to Indian property market followed by Britain, United Arab Emirates and Hong Kong. The country is ahead of its Asia Pacific neighbours including Malaysia, Thailand, Indonesia, Vietnam and the Philippines, which collectively attracted lower capital flows compared to India.

It is critical to note that foreign investors accounted for more than 70 per cent of the total PE investments in Indian real estate market during 2016. The share of domestic investors, which was more than the share of foreign investors in 2010, has gradually declined.

Foreign investors like Blackstone, Brookfield, GIC, Warburg Pincus, the Canadian Pension Plan Investment Boar, Ascendas-Singbridge Group, Goldman Sachs and Qatar Investment Authority have been aggressively investing in real estate assets across the country.

According to the Department of Industrial Policy and Promotion, foreign direct investment in construction development including townships, housing and built-up infrastructure totalled Rs 2,453 crore (or 385 million dollars) during April to December 2017. This marks 250 per cent growth from Rs 703 crore (or 105 million dollars) in the year-on period. The entire real estate sector got investments worth Rs 30,000 crore, including from domestic and overseas investors last year.

The investor-friendly government policies have led many multinational corporations to set up offices in India, which has led to increasing demand for commercial space in central business districts and surrounding residential projects. Besides tier I cities, large format retail developments in tier II cities like Coimbatore, Surat, Mohali and Indore have been attracting foreign investors. Blackstone recently acquired a majority stake in Esplanade Mall at Bhubaneswar for Rs 250 crore.

Due to booming e-commerce, the sunshine sector of industrial and warehousing properties is also witnessing high growth and attracted investments worth 1.01 billion dollars (about Rs 6,535 crore) during 2017. A platform formed between Ascendas-Singbridge and Firstspace Realty recently received inflows of Rs 350 crore for a logistics park near Chennai.

With Western markets saturated, many investors from Japan, the United States and China have tied up with Indian developers to enter the burgeoning market when the Real Estate Regulation and Development Act 2016 is in place. The trend is likely to gather pace in the near future.

It is significant to note that India has embarked upon the world's largest initiative of planned urbanisation in recent years. It has set an ambitious target of achieving Housing for All by 2022. The programme envisages completion of 20 million houses in urban areas and 40 million in rural areas. The Smart Cities Mission seeks to develop a model area within select 100 cities which can drive economic growth and improve the quality of life for people.

As basic infrastructure is at nascent stage, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) aims to ensure basic infrastructure for 500 cities with total investments of Rs one lakh crore. Foreign investors are aware that these are some of the world’s largest and most ambitious national schemes for social inclusion, economic growth and environmental sustainability.

India has also introduced Goods and Services Tax to curb shadow economy and widen the tax net. Although the historic measure of unitary taxation principle had a short-term adverse impact, there is no doubt that it will lead to more transparency, accountability and financial discipline.

Foreign investment always responds positively to increasing transparency and financial discipline. There is no doubt that regulatory and policy changes have made India a lucrative market and foreign investments are increasing at a healthy pace.