Relevance of FDI funding in Indian Real Estate

The relevance of FDI (Foreign Direct Investment) in the Real estate market of India has never been felt more than in the present scenario. Considering that the Real estate sector is one of the fastest growing sectors of our country, it has a vital role to play in the country’s growth and development. Moreover, the fact that it is linked with various other associated industries presents it with the prospect of generating considerable income that can be utilized for other developmental activities of the country.

Real Estate contribution:

The contribution of the Real estate sector towards the total GDP (Gross Domestic Product) is quite significant, and it is expected to increase even further in future. It is expected to increase from 6.3 per cent in 2014 to about 13 per cent by 2025. Moreover, it also contributes significantly towards employment generation and social upgradation. It is the second largest employment generating sector of India after the agriculture sector. According to estimates, employment in the Real estate sector is more than 9 per cent of the total workforce in the country.

Hurdles:

The global economic crisis coupled with domestic issues like the drop in the overall GDP, fall in exports along with the depreciation in the value of the Rupee has rendered the Real estate business with a fresh set of challenges. The woes of Real estate developers have been further compounded due to the recent directives by the Reserve Bank of India restricting banks from lending towards the Real estate business. Besides, the discontinuation of subvention schemes have limited the funding sources of most developers. It in such a scenario that FDI is expected to resurrect the Real estate sector which is reeling under the impact of its present challenges.

Relevance of FDI in Real Estate:

What is the relevance of FDI in Real estate in the present scenario?

Even though FDI in Real estate cannot wish away all the travails faced by the Real estate industry, it will go a long way in providing a much-needed fillip to the sector. In addition to providing a reliable funding source to developers, it will enable the sector to be more organized by providing a steady inflow of funds. The corporatisation will also ensure better transparency in the sector. FDI in Real estate will also increase the exposure of domestic developers to international quality standards as well as global best practices in construction. This will ultimately benefit end users.

Challenges:

Even though the government currently allows FDI in Real estate, there are various rules and restrictions with regards to the size of investment, the lock-in period as well as the exit routes. This curbs the free flow of funds to developers. Besides, foreign investors have also adopted a cautious approach with regards to investing in India due to the various restrictions imposed by the government. Some of the other factors that are dissuading them from investing in India are the volatility currently seen in capital markets, regulations with regards to land acquisitions as well as the Real Estate Regulation Bill.

Solutions:

It has been seen that foreign investors in Real estate are interested in investing in only those counties with lesser restrictions and where they get guaranteed returns for their investments. Hence, it is imperative that a pro-investor policy is implemented to take the investors into confidence. This involves bringing about drastic changes such as providing incentives to projects which are FDI funded, removing policies that are not investor-friendly, and instead bringing in policies that enhance investor confidence.