Why Indian real estate is big for foreign investors?
Authored by Ramesh Sanghvi, CMD, Sanghvi Parrsssva
Earlier this year, the Indian government cleared the path for 100% FDI via automatic route in the real estate sector. This came as a huge relief to the entire industry that had been grappling with numerous challenges and adjustments since a couple of years. With FDI, come a lot of things for the Indian real estate sector, and it gives back equally to the investors, making it one of the most exciting, symbiotic investment stories in the world.
With the slowing down of domestic demand over the past few years, what has kept the Indian real estate market going, have been investments from foreign investors. In 2017 alone, foreign investment in Indian real estate stood at USD 2.6 billion – an impressive 31% YoY growth. As lucrative as real estate investment has always been for Indians, a number of factors kept foreign investors wary. Lack of structure and clarity, complex tax system, weak legal recourses and a tough domestic environment that was difficult to navigate without the help of a local person are some prominent reasons. Most of these problems have been solved in the past couple of years with some much-needed laws, strict execution and a change in the way the real estate sector has organized itself.
One of the major changes that helped was the introduction of RERA (Real Estate Regulatory Act) that protects the buyer throughout the buying process. From having a standardized carpet area, protection against builder insolvency and buyer rights in case of delays, to right to information, grievance redressal and protection against false promises, the act greatly protects buyers. It has infused immense faith into the sector and foreign buyers feel much more confident of investing in India, assured that their interests are well protected.
Introduction of GST (Goods and Service Tax) has brought into even more structure into Indian real estate. With a reduction in effective GST rates, from the initial 12% to the now 8% on ready-to-move, it has made investing significantly more affordable. More people were skewed towards buying already constructed properties over under-construction ones, due to a difference in GST slabs, helping the market to clear built-up inventory. An increase in exemption limit of rental incomes has helped foreign investors to feel more positive about investing in properties they want to lease out. GST has overall, brought uniformity to operations across the country, making real estate standard and simpler to understand for them.
Indian ranks an impressive 19th amongst 73 countries that attract cross-border capital into their property markets. Surging ahead of its Asia Pacific counterparts, foreign investments in India are now higher than the combined similar investments in Malaysia, Indonesia, Thailand, Vietnam and the Philippines. With the laws now allowing 100% foreign investment in real estate, it promises to not just boost investments but also ensure that the sector is pumped with completely clean money. This has been a big, welcome shift that’s appreciated by foreign and Indian investors alike.
Among all the Indian cities, some that have been attracting a major chunk of real estate foreign investors are Bengaluru, Mumbai, Pune, Hyderabad, Chennai and Delhi-NCR. A number of factors have made these cities a favorite – growing business hubs, better connectivity with world cities, better intra-city infrastructure and the promise of a growing market.
Builders have also made the buying process simpler for foreign investors, leveraging technology for swift purchases even across the seas. Virtual and Augmented Reality have played a strong role in aiding this process, greatly enhancing the customer experience. Foreign buyers can now ‘walk through’ their properties, checking how much sunlight pours in, where furniture can be placed and exactly how large is the area – all without entering India. This enhanced experience needs nothing more than downloading a simple app. As with all superior brand experiences, one happy customer is very likely to recommend the property to another, leading to a domino effect of overseas investments.
All these factors combined have brought in immense confidence in Indian realty, boosting its appeal to foreign investors. By 2030, the Indian realty sector is expected to breach USD 1 trillion. Since 2014, India has consistently climbed global real estate rankings, and looks like the ascend will continue thanks to the revolutionary reforms the sector is undergoing. From being the most lucrative real estate destination in Asia, India will soon find itself in the top choices globally too. There has never been a better time for foreigners to invest in Indian real estate, as we stand on the cusp on a long, steady upswing in demand and prices.