How will FDI impact Indian real estate?
FDI – Indian real estate
The central government’s decision to ease the Foreign Direct Investment (FDI) norms will certainly bring in much-needed capital in the cash-crunched domestic real estate sector, but according to experts, it will further fuel the soaring prices.
Property experts say the capital raised from FDI is not cheap. It comes with an interest rate of 20-25 per cent. “If developers take a loan to buy land at this rate, it is natural for them to increase the rate of the property to recover the cost. Earlier, the property market was driven by the end user. Now it is driven by investors,” opines property researcher Pankaj Kapoor, MD of Liases Foras. “FDI has been creating a vicious circle by spiking the property rates resulting in imbalance to the urban economy. While easing of FDI norms is good for investors, it does not solve the affordable housing problem. Rather, the government should ask banks to lend to developers at a cheaper interest rate and set stringent timelines for completion of projects,” he added.
Gulam Zia, Executive Director of Knight Frank India Pvt Ltd, said the real estate sector is going through a bad phase from the last three consecutive festive seasons. As a result, fund raising has become the highest priority for developers. Although FDI will be a major source of capital infusion for them, this policy shift will not have a significant impact in the short run. “Without the consumers’ interest, no amount of changes in policy decision will have an impact on attracting the foreign investment into Indian real estate market,” he further added.
Conversely, Developers have a different point of view. Anand Gupta of the Builders Association of India feels that the easing of FDI will be very encouraging for the property sector. “There will be an easy cash inflow at a cheaper interest rate. Almost 70 per cent of the project cost goes in purchasing land in Mumbai. Once we are able to buy land at affordable rates, it will also cut down the property prices in the long run. It will, however, take at least a year to see the impact on ground,” said Gupta.
