Indian Real Estate: On the Upsurge

Growing rapidly over the past 3-years, India's real estate investment market has averaged a return of around 50% per annum for last four years, attracting huge investments from various quarters.

Some of Indian real estate's main sources of investments are from high net worth individuals (HNI), private equity funds and since the government's partial relaxation of FDI regulations in February 2005, from foreign direct investments (FDIs).

CB Richard Ellis, a global consultancy firm says the response from foreign investors has been overwhelming. The firm reports that by varied estimates, more than $15-billion (Rs. 70,000-crores) of foreign funds are awaiting investments into India.

And, the last one and a half year has seen domestic realty funds raising $4.5-billion (Rs. 20,500-crores) to invest in the real estate sector. However, there is no official estimate made on the investment from HNI group. But, banking sources report the amount could be anywhere around Rs. 1-lakh crore.

Anshuman Magazine, the Managing Director of CB Richard Ellis, South Asia, says money is not a problem for the real estate sector, as it there is plenty of it; the problem is the availability of good quality investment opportunities in the country. As well, a more transparent real estate market will, further improve the fund flow.

The good news is that things are improving. According to Jones Lang LaSalle's latest Global Real Estate Transparency Index (2006), India has achieved one of the region's most significant improvements in real estate transparency over the past three years.

Moreover, the increasing participation of foreign investors and the emergence of new investment vehicles including the introduction of real estate investment trusts (REIT) will continue to force the pace of structural change over the remainder of the decade.

However, as large amount of funds are chasing few good projects in Tier I and Tier II cities like Delhi, Mumbai, Bangalore, Pune Hyderabad and Chennai, the prices have gone up substantially in the last four years, reducing the expected investment returns in these cities.

However, the return could be maximised if one chooses the right investment locations and segments. JLL in its report points out that India is a vast and diverse country, and risks can be reduced by careful selection of location and segment like residential, commercial and retail. Suburban offices, retail and the residential sectors are likely to offer the greatest opportunities over the short and medium term.