Friday, March 28, 2014

An Article About "FDI in Real Estate"


Though the Indian economy was opened up and liberalization was set in, Foreign Direct Investment in real estate was not much encouraging.  Foreign investors preferred stock markets for investments.  Though there was much potential in real estate, the property laws of the country and investment climate deterred the investors.  The real estate is the mother of all sectorsand supports many industries.  Even the Government of India earlier restricted the foreign direct investment for political and security reasons.

It is estimated that our country will require $24 billion of investments in next five years and development of real estate sector is vital for economic prosperity.

The previous government led by Atal Bihari Vajpayee realised the importance of reality sector; further liberalised the norms of FDI in township development, information technology parks, special economic zones and hospitality sector.  But many felt dilution of norms is half hearted.  No doubt the new norms allow 100% FDI, but certain restrictions like minimum block-in-period of three years before repatriation of original investments and project completion stipulation that is 50% of the project should be completed within five years of possession of land work as road blocks.  As such there were only few proposals in the beginning and later on FDI in reality swelled may be owing to immense potential available in the country.  Many foreign construction companies areseeking clearance for investment as the reality sector.

Apart from the available potential there are other factors which have attracted FDI

A)        Increased demand
B)       Improving economy
C)       Availability of housing loans at reduced interest rates

Confederation of Real Estate Developers of India (CREDAI) informs that the sector is set to witness capital infusion of about $7 bullion next year; out of which $ 5 billion is from foreign investors.

China is a serious competitor to our country, as foreign investors prefer either China or India. But of late, the investors are moving to India as they find that property sector in China is reaching a point of saturation and as most of landed property there are leasehold and owned by the Government.  Whereas in India the property is mostly freehold and potential is huge.  Our Bangalore scores over Mumbai as to the freehold land.  Another important factor is returns on investment in commercial or residential property which are comparatively higher in India, particularly Bangalore.  The chart below shows the returns on investments.

CHART –I

City
Yield rates P.A.

Commercial (Offices)
Residential
Bangalore
11.0-12.0%
6.0-7.0%
Chennai
11.0-12.0%
3.5-5.0%
Delhi
7.5-9.5%
5.0-6.0%
Hyderabad
10.0-12.0%
6.0-8.0%
Kolkata
8.0-12.0%
5.5-7.0%
Mumbai
10.0-12.0%
5.0-7.0%
Beijing
9.6%
8.3%
Brisbane
7.0-8.0%
NA
Guangzhaou
9.0-10.0%
2.4%
Hong Kong
3.95%
3.75%


Many plots of sick and closed industries are being developed into apartments, shopping complexes, and recreation centres.  The respective state governments are also encouraging such developments as they earn more revenue from such developed properties.  Foreign investors see a golden opportunity in investing in such developments, but domestic builders, relators do not have resources to siege the chance.  The following chart lists the major Foreign Direct Investments in India.  Bangalore has the distinction of highest foreign direct investment. $791 million from Canada based Royal Indian Raj International corporation for Royal Garden City, a fully integrated township is coming up.  The total development will include 35,000 residential units with an investment of approximately $2.9 billion and is scheduled to be completed by 2015 in various phases.

MAJOR FDIS IN INDIA

Dubai-based Emaar Group has invested $100 million in a township project in Hyderabad that includes a hotel and a golf course.

Jakarta-based Salim Group is to invest over $ 100 million in a 309-acre (124 hectares) township project in Kolkata.  This Rs.500 million ($ 11 million) project will be developed as a joint venture between Salim Group and the Kolkata Municipal Development Authority.

High Point Rendel of UK, US-Based Edaw Ltd and Kikken Sekkel of Tokyo have teamed up to work on a township development project in Jharkhand.

Canada-based Royal Indian Raj International Corporation is coming up with $791 million for Royal Garden City, a fully integrated township in Bangalore.  The total development will include 35,000 residential units with an investment of approximately $2.9 billion and is scheduled to be completed by 2015 in various phases.  This is the highest FDI investment till date.

CESMA International Pvt. Ltd, a subsidiary of the Singapore government’s housing agency, alongwith the Andhra Pradesh State government, is promoting a township in Hyderabad.
 
Lee Kim Tah Holdings (a Singapore – based company) with an investment of $115 million is developing a 100-acre mega township along with commercial complex and related social infrastructure near Mumbai.

The Andhra Pradesh Housing Board has approved a 50- acre township in Vijayawada. CESMA International will construct houses and apartment blocks here.

Malaysian developer IJM is working on a township spread across 35 acres in Hyderabad near Hi-tech City.

Ho-Hup construction Company Berhad is coming up with a 125-acre development project at Shamshabad in Hyderabad along with the Andhra Pradesh Housing Board.

SembCorp Engineers and Constructors Pte Ltd, Singapore, is working on eight projects in Mumbai, Pune and Bangalore.  The company has invested $50 million.

Universal Success Enterprise Limited of Indonesia has signed a memorandum with Delhi-based developer Unitech Ltd for a $155-million information technology park and housing project in Kolkata.

Singapore’s fifth biggest property group, Keppel Land Ltd made its first foray into India after buying land in India’s Software capital Bangalore for $ 13 million.  Keppel Land, which is partnering Purvankara Projects Ltd, is developing the first phase of condominium project located in an area known for high-tech campuses.  It will be launched in early 2006.

Singapore-based Evan Lim & Co Pte Ltd is associated with a township development project in Visakhapatnam, Andhra Pradesh.


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