3rd of the series
Track2Realty Exclusive
A recent industry report shows that FDI in 2010-11 was the lowest in the last four years. According to the FICCI–Ernst & Young real estate report, the FDI in the sector declined to 6 per cent of the total direct investment coming to India in 2010-11 —the lowest in four years.
Real estate attracted just $1.6 billion worth of FDI in 2010-11, against $4.1 billion in 2009-10, $3.8 billion in 2008-09, and $3.1 billion in 2007-08, the Government estimates show. The total FDI inflow into India was $27 billion in 2010-11, $37 billion in 2009-10, $37.8 billion in 2008-09 and $34.8 billion in 2007-08, as per data provided by the Ministry of Commerce and Industry.
“The total investment volume in 2007 in real estate deals was $1.3 trillion globally with 20% of this going to Asia. In 2011, the total investment in the sector would be $700 billion with 50% of this coming to Asia,” says Carlo Sant’ Albano, Chairman of the Board of Directors of Cushman & Wakefield.
“The debt situation of majority of real estate companies is bad,” says R R Singh, Director General, National Real Estate Development Council (NAREDCO). “Since the growth outlook is not being very optimistic, foreign investors are getting discouraged to invest in the sector.”
Exit route not being easy is another reason deterring the foreign direct investors. In three years if an investor is not able to exit where a venture is not profitable, it discourages the foreign investors. It is generally believed that with delays in delivery becoming a common phenomenon in the sector, investors are going to look at the execution of the projects. Once a delay happens, it affects the cost and the price of the project.
Though FDI inflows into the sector were down last year, foreign funds are not an answer to the present tight liquidity conditions because the costs, at 30 per cent, are even higher there, says Lalit Kumar Jain, CREDAI President.
However, while FDI dips to lowest in four years, Private Equity gained momentum. Between January and June 2011, PE investments in real estate reached $444 million, 47 per cent higher than the investments made in 2010 during the same period. And, most of the investments are coming from realty-focused funds, says a joint report brought out by FICCI and Ernst & Young.
…to be continued
