The optimism among real estate market participants has gone with the ascent of a stable central government. Buyer sentiments are looking up as evident from the escalating conversion rates in the various markets. Developers and experts are also expecting the inflow of foreign direct investment to increase in the real estate sector.
In the past few years, the realty sector has witnessed declining sales and piling on inventory apart from piling-up debt and cash crunch. Both investors and buyers are expecting a positive outcome post the General Assembly elections. The new central government is expected to adopt measures which would revive the realty sector of different cities. The revival has been predicted to be noticeable within 6 to 12 months. Positive buyer sentiments should return to this sector.
Also read: Property Market Overview – Post Maharastra Elections
FDI inflow in Real-Estate Sector
As per the data released by the Department of Industrial Policy and Promotion (DIPP), inflow of Foreign Direct Investment in the construction sector- housing, townships and built-up infrastructure had reduced to roughly $1 billion in the period between April 2013 and February 2014 from $3.1 billion received between April 2011 and March 2012. From 2000 to 2014, the cumulative foreign direct investment received was around $23.1 billion, of which 11 percent was channeled into property investment.
Permissible levels of FDI in realty sector
At present, 100 percent foreign direct investment is allowed via the automated route in this sector. It covers housing, townships, hotels, commercial premises, hospitals, resorts, and recreational facilities, educational institutions, regional and city-level built up infrastructure. Recently FDI norms in the construction sector were relaxed for accelerating the fund flow into relatively smaller realty projects which had earlier been restricting factor for foreign investors.The investing company now requires bringing in $5 million worth of FDI within 6 months of the project’s commencement rather than $10 million which was the previous requirement. Subsequent instalments of FDI may be brought in till 10 years from the beginning of a project or prior to completion, whichever is earlier.
For development-construction projects, the minimum floor area with which FDI can be introduced is 20,000 sq. m. against 50,000 sq. m. which used to be the threshold. FDI in realty shall be permitted fully subject to these conditions.
Even though no minimum plot area is stipulated for service plots, for combination projects which include construction projects and serviced plots, either of the 2 conditions of floor area and capital shall apply. Foreign investors may exit after a project has been completed or post 3 years from the final investment date depending upon trunk infrastructure development. Indian investors in projects funded by FDI shall be allowed only to sell developed plots.
No restriction on capitalization or area shall be imposed if thirty percent of the cost of the project is earmarked for affordable houses.
Expectations of Real Estate Market Players
Realty experts are optimistic about an improvement in sentiments for near-term investment. Currently, home money is on the lookout for viable investment options. Investors are positive about striking deals at lucrative valuations. Moreover, foreign money too has been biding its time and waiting for political stability prior to entering India. The ascent of a stable government in the parliament shall ensure the best scenario possible.
The amount of funds that were being raised was to the tune of $1.8 million. With a stable government in power, real estate market players expect much more traction in the market and a lot of investors to enter the Indian property market. The stable government has uplifted the investor community’s sentiments considerably, which shall in turn impact office space and housing sales. Therefore, growth of the property sector in India expected to be fuelled by corpus derived from both investors and end-users.
Some of the other issues that are plaguing the realty sector that need to be addressed immediately are policies for affordable housing, fast-tracked approval processed, and allotting real estate with infrastructure status and establishing a regulator of the sector. Unless these measures are adopted, property prices shall not see an upward rise immediately.
As the demand improves, the present stock of commercial and office space may prove to be insufficient for catering to demand which could result in higher rental rates.
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