The Indian economy showed resilience despite the global financial slowdown in 2008. Strongly driven by the service sector the Indian economy is the fastest growing after China and it has posted robust growth in the last three years.
An established IT/ITES industry, a growing BFSI (Banking, Financial Services and Insurance ) sector, and the emerging sectors such as – Manufacturing, Media and Telecom , have been the core growth drivers of the economy.
Going forward, the increasing potential in sectors such as biotechnology, pharmaceuticals and semiconductors are expected to trigger growth in future years.
ADDRESS POLICY PARALYSIS
In recent times, the Indian economy has faced challenges because of government’s policy paralysis. The delay in reforms to open up sectors to FDI, delays in approvals for real estate and infrastructure projects, along with uncertainties over implementation of General Anti-Avoidance Rules (GAAR), are causing anxiety among foreign investors who want to explore opportunities in India. Although, GAAR, which was introduced within the Direct Tax Code of the union budget, has been deferred until fiscal year 2013-2014 , the extent to which it can change income-tax laws retrospectively is still unclear .
While further postponement of the decision to allow FDI in multi-brand retailing has caused dismay in investors, the passing of regulations to allow 100% FDI in single brand retailing has received a mixed response from international retailers given the local sourcing clause.
Such policy reversals/rollbacks in recent times and a lack of bold decisions by the government has put India in a bad light and has negatively impacted the country’s reputation among foreign investors.
NEED FOR A ROBUST INVESTMENT CLIMATE
FDI is of acute importance to the growth of the Indian real estate market primarily because of the sector’s unprecedented scale of capital intensive requirements . While banks have played an important role in the real estate transformation , by increasing the availability of funds, bank credit is still quite expensive in India and can only be a limited source of funding for risky projects. In 2011, the RBI introduced strict and ponderous rules for bank lending to the real estate sector and this has made it even more expensive and cumbersome for banks to extend loans to real estate developers. Compared to developed economies, India still does not allow Real Estate Investment Trusts (REITs) and Real Estate Mutual Funds (REMFs).
The FDI policies need to be relaxed progressively to attract interest from investors and provide them with a profitable exit strategy in the future. Foreign investment is required not just for meeting the huge capital requirements of Indian industry but also to enhance the competitiveness of Indian enterprises through access to global designs, better practices and technology. This calls for a cohesive approach from the industry as well as the government towards creating a better investment climate to ease the current liquidity crunch among developers.
TRANSPARENCY – CRITICAL DRIVER FOR GROWTH IN INDIA REAL ESTATE
India and China witnessed the largest improvements in the transparency index within the Asia-Pacific region during 2012.
International corporate occupiers and investors are now increasingly demanding better information on market dynamics . Data availability has been improving since 2008 across office, retail and residential real estate sectors in India’s major cities. The increasing penetration of national and international real estate developers , investors and occupiers in the secondary and tertiary cities of India has acted as a catalyst to increasing transparency outside the Tier I cities.
Real estate agents as well as facilities and project managers in India are increasingly adopting higher professional standards and this is reflected by the widespread penetration of International Property Consultants across Indian cities, both Tier I and Tier II.
Moreover, developers are becoming more professional and transparent in a bid to attract private equity funding. There has been an improvement in the reporting standards followed by developers as well but, while the improvement in transparency levels in Indian real estate is good, it is still not adequate .
PROFESSIONALISM AIMED AT IMPROVING EFFICIENCIES
Developers need to become more organised and efficient and aim for global best practices, in terms of construction and design. They need to emphasise newer and better technical know-how and specialised construction techniques, using good quality economic materials and by employing trained professionals.
This will help them implement new projects faster and in a more efficient manner . Over the years, construction technology has also evolved, so using the latest techniques is vital in such a competitive environment.
EMPHASIS ON ADEQUATE INFRASTRUCTURE TO UNLOCK POTENTIAL DEVELOPMENT OPPORTUNITIES
The Government realises the need to upgrade the infrastructure of various Indian cities, to de-congest the city centres and unlock the development potential of locations on the city fringes. Due to a lack of available land within cities, suburbanisation has accelerated in several metropolitan areas during the past decade.
Several office, retail and residential developments have dotted the suburban landscape due to unaffordable land prices in city centres. Therefore, the pace of infrastructure development needs to catch up with the speed of real estate development so both can be integrated and public-private partnerships (PPP) are required to support this. The Government needs to focus on creating a synergistic environment for private participation to enable a sustained and successful introduction of PPP projects.