A concrete move for building joint ventures

Foreign investment in real estate opens the floodgates

The government's decision to open up real estate for foreign direct investment (FDI) will see a great number of joint ventures in the sector.

"Sizeable funding will come into the country and we will be able to take up larger projects through joint ventures. This will increase the volume of work as funds come in and reduce the margins through competition," said leading real estate developer Niranjan Hiranandani.

Though foreign investors are now allowed to participate up to 100 per cent, many are likely to come to India through 25:75 or 50:50 partnerships.

Many foreign builders are expected to tie up with Indian builders to understand the ropes and understand the market, said leading Mumbai architect Hafeez Contractor.

Foreign entities are likely to make inroads into the Indian market through joint ventures since builders today face a lot of glitches.

"Today builders need to get approval for their plans from the municipal corporations, which are not easily forthcoming. It is likely that foreign entities may not like to get involved with such issue and practices," said Anil Harish, advocate and partner, D M Harish & Company.

Tie ups with foreign builders will give Indian players a bigger brand name and put them in the international league, he added.

As in the case of globalisation in the fast moving consumer goods space, FDI in real estate will bring about a better quality product, and improved standards of construction, said Sunil Bajaj, real estate consultant.

The business process outsourcing sector will be the first space to see foreign interest, said Harish. "Since India is developing as the BPO of the world, foreign builders are likely to take up a number of these projects," he stated.

Foreign builders are expected to prefer entering the commercial real estate space as opposed to the residential space. FDI inflow into the sector is also likely to treble from the current level of $450 million in next one to two years.

"The FDI investment into the sector has been sluggish at $400-450 million in last two years and this is expected to increase three times in two years," an India Property Research official said.

There have been reports that nearly nine FDI proposals are waiting for the FIPB approval and experts that these investments will materialise through the automatic route.

Amitav Ganguly, vice-president of Ansal Properties and Infrastructure said, "The new policy will simplify the process of acquisition of land and the project implementation will be faster."

Developers such as Unitech and Ansal Properties are in talks with several Asian foreign developers for smaller residential projects.

Developers such as MGF group, which who are in talks with Dubai-based Emaar Group for a $800 million integrated township project, will now look at the automatic route.

"The FIPB hearing for the project has been deferred and the hearing will be next week. If we don't get FIPB approval, we will file an application for the automatic route," Shravan Gupta, director of MGF Group said.

"We will also see reduction in speculative activities with the government restricting the sale of undeveloped plots. The new norms will not be misutilised with such a clause. Also, the smaller developers will benefit from this," Sanjay Verma, joint managing director of Cushman and Wakefield said.

Under new norms, the minimum area to be developed in the case of development of serviced housing plots would be 10 hectares (or 25 acres), while in the case of construction development projects it would be a built-up area of 50,000 sq metres.

In case of a combination project, any one of the two conditions would suffice.