We took a look recently at the “Ups and Downs of the Indian Property market,” and felt a closer look at the situation was in order.
According to a recent report by the Financial Times, the real estate sector in India has seen tremendous growth over the past year; property prices have soared and the number and scale of projects has increased.
To fund these projects, developers are looking to investors, both domestic and foreign, through avenues such as listings on London’s Alternative Investment Market, domestic initial public offerings, private equity participation and the setting up of joint ventures.
The Indian government is now allowing foreign investment in townships, housing, built-up infrastructure and construction projects without prior approval from the exchange control regulator.
This means that foreign investors are permitted to invest in wholly owned subsidiaries or in joint ventures with Indian real estate companies.
Whether foreign institutional investors (FIIs) could participate in real estate IPOs and whether FDI rules would apply to such investments was unclear until recently. FIIs are required to register with the Securities and Exchange Board of India and are permitted to invest in Indian companies through the portfolio investment route under which an FII can buy up to 10 per cent of the shares of an Indian company, provided shareholdings by all FII investors do not exceed 24 per cent of the company’s shares, among other restrictions..
The Indian government’s decision to open up foreign investment in property has been an important catalyst. The government’s initiative to clear the market of unnecessary restrictions and establish clarity about foreign investment routes has taken steps towards better transparency, resulting in a massive influx of investment capital from foreign investors, particularly the Japanese, who seem to be leading the way.
India aims to attract $5 billion in investment from Japanese companies next year, more than double the inflow of the past 15 years combined. Japanese Prime Minister, Shinzo Abe is reported to be considering a 400 billion yen loan to the Indian government to be used in the construction of a cargo railway between Mumbai and New Delhi. Is the rest of the investment world being left behind?