Commercial & Retail Real Estate To Gain Most From FDI Reforms: Ficci Study

The recently announced foreign direct investment (FDI) reforms by the Centre for the construction development sector is expected to provide a new direction to the foreign investment regime. The commercial and the retail real estate sectors will gain the most as they are expected to receive the maximum foreign capital due to current FDI liberalisation, said a survey by industry body Federation of Indian Chambers of Commerce & Industry (Ficci).

Here are some key findings of the survey:

• This will help the industry overcome the financial crunch it has been facing due to slowdown.

• The reforms may also help the industry and the Centre achieve the Housing for All by 2022 mission, the report points.

• After commercial and retail, the residential real estate sector, including affordable residential projects, will receive the second-highest foreign capital.

• A majority of the real estate stakeholders feel satisfied with the changes made in the FDI policy for the construction development sector.

• Fifty-five per cent of the respondents feel that there will be more than 15 per cent annual increase of the FDI flow into the realty sector due to current steps. Twenty-three per cent are of the view that the increase will be between 10 and 15 per cent while 22 per cent feel that the increase in the FDI flow will be less than 10 per cent annually from here on. According to the Department of Industrial Policy and Promotion (DIPP), the total FDI inflow in the construction development sector (including townships, housing, built-up infrastructure) during April 2000 to September 2015 has been around $ 24.16 billion, which is about 9 per cent of the total FDI inflows (in terms of $) from April 2000 to September 2015.

• Eighty-nine per cent respondents feel that allowing of a 100 per cent FDI under automatic route in completed projects for operation and management of townships, malls/shopping complexes and business centres, is a significant step taken by the Centre and will boost the market for REITs. However, remaining 11 per cent feel that this policy change will not be a game-changer for REITs in India.

• The survey pointed out that the industry feels there was a scope for improvement in the FDI regime in India. About 67 per cent respondents feel that the current FDI regime for real estate in India vis-à-vis other countries is 'average' while only 33 per cent feel that the FDI regime in India for real estate investments is 'good'. The reason for the 'average rating' of FDI regime particularly for real estate sector by a majority could be the past experience of investors with regard to laws and regulations that governed foreign investments in the realty sector, the report added.

• The respondents also suggested, both Centre and states, reduce the lock-in period applicable for FDI investments from three years to up to two years, to enhance investors' interest.