By Vipin Agnihotri
In the recent report of Jones Lang LaSalle Meghraj, for the year 2007, foreign direct investment worth about $ 30 billion is in the pipeline for all Asian real estate markets. Of this, $ 6 billion is planned for the Indian market alone.
According to experts, Foreign Direct Investment has been increasing in India over the past several years. In terms of statistic, during the 1990s, annual FDI inflow was $2-3 billion a year. On the other hand, in 2004-05, it touched $ 5.6 billion and in 2005-06 it touched a peak of $7.2 billion.
It has come into the notice of The India Street that JLL may be underestimating and that $10 billion of foreign investment will enter the Indian real estate sector over the next year or so. As a matter of fact, the share of real estate in FDI is expected to be 26 percent this year, up from 16 percent in 2006.
Listed and unlisted real estate companies and private institutional funds are the key players making FDI investments in India. It is worth mentioning in this regard that more than a dozen overseas private equity firms such as Goldman Sachs, Morgan Stanley, JP Morgan and Blackstone Group are looking at investment opportunities or have already invested in the Indian real estate market.
In my opinion, investors are attracted to the strong commercial property yields across metros, the high capital and rental value appreciation and the availability of quality supply in the country. The pivotal factor here is that with real estate yields in mature economies narrowing, India’s current commercial property yield of 10-11 percent is viewed as attractive. Apart from that, rental rates for grade A commercial properties in Tier-I cities of Mumbai and Delhi have appreciated by more than 100 percent in the last 15-18 months.
Initial signs are that the growth of the real estate sector will continue with strong IT-ITES, banking, financial services and insurance and corporate demand driving the office sector. No one will argue with the fact that investors have now developed confidence in the India growth story.
Theoretically speaking, the average growth in India’s real GDP over the last six years has been 7.1 percent. According to government figures, India’s GDP is expected to grow at 9.2 percent. This is expected to translate into big demand for all segments of real estate.
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