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Look who's driving the realty boom - Views on News from Equitymaster

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Look who's driving the realty boom

Aug 24, 2010

If you thought that all the big bucks entering India were through the stock market route or in setting up businesses in high growth sectors like IT or telecom, you were wrong. A large portion of FDI (foreign direct investment) is now being invested into India's housing sector.

The FDI in India's real estate and housing market jumped almost 80 times or 8000% between 2005 and 2010. In FY05, the FDI in this sector was a mere Rs 1.7 bn. This has however increased exponentially to Rs 136 bn in FY10. In the past 10 years, cumulative FDI inflows into this sector totaled Rs 381 bn or US $8.5 bn. This makes it fourth on the list of FDI inflows in the past decade. What is surprising is that this sector did not even feature in the top ten list in the 15 year period post liberalisation from 1991-2006.

Source: Department of Industrial Policy & Promotion;
Note: Computers include hardware and software

Metros are where the money is. According to a leading business daily, the largest number of building projects where FDI is in action is in our very own financial capital, Mumbai. Of the 1,614 projects in which foreign investors have put in cash since 2005, 422 were cleared by the RBI's Mumbai office, followed by 316 in Delhi. Other large cities including Bangalore with 225 projects, Hyderabad with 105 projects and Chennai with 68 projects, also received foreign capital.

In Mumbai over the past four years, according to data from Times Property, average real estate prices have shot up significantly. Cuffe Parade, Ghatkopar, Andheri (W), Vashi and Bandra (W) have seen hikes of 72%, 95%, 96%, 87% and 79% respectively. The largest FDI in the last five years however has been in the construction of a technology park at Bandra Kurla Complex (BKC) in Mumbai, totaling US$ 372 m. Rates of Bandra (E), where BKC is located have incidentally increased by 162% since August 2006.

But, due to the huge boom in the property market across the country, FDIs are not confined to metros and big cities. Since 2005, real estate projects have been approved by RBI offices in Bhopal, Kanpur, Kochi, Jaipur and Panaji, amongst others.

Offshore banking zone, Mauritius has contributed the maximum to FDI fund inflow to India, totaling 42% of total funds in the past decade.

With new iconic structures such as World One by Lodha Developers and the planned hill city Lavasa, by HCC coming up, India's property market is expected to see more money from foreign investors. Initial public offerings by the developers are also an easy exit route for the foreign investors to cash in on their investments.

For investors in real estate and home buyers, however, this may means paying a heavy premium. While buying a house to reside in may not be postponed, investments could certainly be more value driven.


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