Though international institutional real estate investors have made a beeline to invest in domestic realty, the actual fund flow remains just 10-15% of commitments so far.
J P Morgan, Sun Apollo, Citigroup, Blackstone, Starwood and Trikona Capital are among the key international realty funding agencies that are scouting for projects in India. But, according to sources, with a fund of $360 million, JP Morgan has invested only 10% in India. Trikona Capital has a fund of $500 million and has not as yet announced any investment in the country, whereas Sun Apollo, with a fund of $630 million has also invested only 10% in India as of now.
The reason, property experts feel, is the foreign direct investment (FDI) guideline that allows investment in development-based projects and not in income-generating ones. Some attribute slow progress in investment to the fact that not many projects of globally standard are being developed in India today.
According to an Assocham survey, the FDI share in the domestic real estate market will increase by at least 10% by March 2007 and reach about 26%, against 16% in 2005-06.
Says Ambar Maheshwari, director, investment advisory, DTZ Debenham Tie Leung, “The Indian market is very young and it takes time for foreign investors to understand it, do their research and then zero in on any project to invest in, in terms of its lucrativeness. Most funding agencies do not even know where to put their money, as there are very few global standard projects coming up in India as of now.”
Development-based projects are those which start from the construction stage itself, meaning that at the time of investment the project is just a plain piece of land. Income generating projects, on the other hand, include commercial buildings which can be given out on rent and hence generate income. Most western countries and China allow FDI n income generating projects.
A fallout of this increasing capital flow is rise in realty rates. “The market is getting liquid and with so much capital available today, rates in most projects are shooting through the roof,” says Rajiv Agnihotri, senior business analyst, of propertiesindia.com.
Source : Financial Express