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India’s real estate market is estimated to be worth around US$ 12 billion. According to surveys, this number has been steadily increasing at a 30 percent rate for the past few years. The majority of real estate developed in India (almost 80%) is residential, with the remainder consisting of offices, shopping malls, hotels, and hospitals. The offshoring industry, including high-end technology consulting, call centres, and software programming firms, is mainly responsible for this phenomenal economic rise. As mentioned earlier, FDI is critical to sustain economic growth. Now is the best time to invest in the country, even as policymakers have begun to emphasise constructing adequate, relevant infrastructure.
FDI Policy: A Boon or Bane?
Disinvestment in India’s real estate sector has created numerous opportunities for growth and development. The country’s economy has improved due to prioritising and attracting foreign investment. However, the existing foreign direct investment (FDI) policy contains specific requirements that make it difficult for foreign investors to do business here and discourages investment in the long run. The current policy framework needs redrafting to maintain foreign investors’ interests.
India’s real estate sector has grown significantly in the last ten years. Construction was the third largest sector relating to FDI inflow between April 2000 and March 2021, according to data given by the Department for Promotion of Industry and Internal Trade Policy (DPIIT). It is one of the most significant industries for creating jobs, and it has an induced, direct and indirect impact on all sectors of the economy.
Before the liberalisation of FDI regulations in the real estate industry, the market was fragmented, plagued by market uncertainty, and dominated by local operators.
The 2005 guidelines provided an opportunity for FDI inflow in real estate in India. The move can be regarded as one of the union government’s most significant policy decisions in decades. The policy is a moderated version in many ways and is based on the needs of specific sectors. It considers several risks associated with investments and safeguards the interest of investors.
The FDI Policy states that in completed projects for the operation and management of townships, malls/shopping complexes, and business centres, 100 percent FDI via the automatic route is permissible. Transfer of ownership and/or management of the investee company from residents to non-residents is also permitted in case of foreign investment. However, there would be a three-year lock-in term computed concerning each tranche of FDI, during which no transfer of immovable property or part thereof would be authorised.
The government is urging foreign investors to invest in these projects directly. The results, fortunately, are encouraging. A loan of $1 billion has been agreed to in principle by the Asian Development Bank. By issuing a $0.5 billion loan, the World Bank has demonstrated its willingness to cooperate. The BRICS Development Bank has also expressed its support for the initiative.
Away from Problems to Smart Cities
Though financing is vital, the operational details can cause problems for the government if they remain unresolved. Technical support, waste management, renewable energy management, water treatment and supply, and the creation of innovative technologies to control traffic and transportation are just a few of the problems that need redressal now.
The government is attempting to straighten out these operational snafus. It has requested that city administrations submit their suggested plans; cities that fail to do so may be eliminated. Many cities out of the selected cities have given their proposals for intelligent transportation systems, WiFi services, and radio frequency-based identity tags on residential trash cans, among other things. In addition to their proposal, these cities are also expected to include facilities such as affordable housing, sewage treatment plants, smart street lighting, roof-top mounted solar panelling, solid waste management, and waste-water recycling.
Conclusion
FDI plays a considerable role in making a country a fast-growing economy, and foreign investors regularly fund the most developed sectors.
In India, real estate had not looked too promising in the past for FDI, owing to acute liquidity crunches, developer delays, additional liabilities, and such. This was partly due to obstacles like regulations around restricted lands. Nevertheless, now the government is trying to make efforts for its Smart City Mission, and the inclusion of FDI has a considerable role.
