India is one of the most lucrative business locations, offering attractive returns, says Carlo Sant’Albano, chairman of the board of directors, Cushman & Wakefield, in an interview with Dilasha Seth. Edited excerpts:
Is the global economic slowdown hitting real estate once again across the world, including India?
Any slowdown is a warning of an impending crisis, if matters are not resolved soon. It is symptomatic that some economic decisions have not yielded results as they were expected to. The current global economic conditions, ranging from the euro zone crisis to the drop in America's credit ratings, would have an impact on the market. Having said that, there are lessons learnt by corporates from the previous crisis (2008- 09) which are coming in handy now. Corporations today are better capitalised and are far more cautious in their approach. The good news is they are still expanding and Asian markets are high on priority. It is expected that in the short to medium term, there could be a revival of sentiment across the major Asian economies and India is expected to be among the top.
Right now, what is causing the slowing of the real estate industry in India? To what extent are financial institutions responsible for the slump in the real estate sector?
Real estate companies are faced with the difficulty of raising funds from traditional sources, such as banks and equity markets. This has led to the sector increasingly resorting to financing through the private equity route. In the absence of a regulator and real estate investment instruments like the Real Estate Investment Trust and the Real Estate Mutual Fund, the sector is faced with several inadequacies like less transparency and limited liquidity. As these real estate investment instruments become operative, the market would get a structured monetisation vehicle for the capital intensive commercial, residential and retail markets. In the global market, India may not be the most inexpensive place to set up business. Yet, it is still one of the most lucrative locations, with attractive returns. The global economic uncertainty is definitely one of the reasons why the market is seeing a moderate slowdown in interest, but that should be viewed in totality.
How can the Indian realty sector be made more transparent?
India is recognising the need for transparency to attract investments from across the world. The current macroeconomic environment in the country indicates the necessity of bringing in reforms in the taxation, investment and banking policies. For instance, the proposed banking sector reforms is expected to strengthen the rural economy, while the implementation of the Goods and Services Tax would simplify various procedures by replacing the existing multiple taxation system. Making the realty sector more organised, closing regulatory gaps and addressing the concerns of various parties involved are of prime importance.
Will the Land Acquisition Bill help?
The Land Acquisition Bill is a great concept. But it alone may not be sufficient. Also, it is essentially focused on two aspects rural/agrarian land acquisition and understands it from a large scale infrastructural development perspective. The Land Acquisition Bill has to address other aspects like township development, industrial development and SEZ development, which are all addressed in separate norms. Also, we must agree land is eventually a state law and till the time the Land Acquisition Bill is not formulated keeping in mind the various state regulations, it would continue to be inadequate in its purpose.
According to a recent report, foreign direct investment (FDI) in real estate in India this year was the lowest this year in the past four years. What is stopping foreign investors from investing in the Indian realty sector?
FDI inflows in the real estate market remained modest at Rs 469 crore during the first quarter of 2011, approximately three per cent of India's overall FDI inflows. Though the inflow was lower than the investment registered during the same time period in 2010, the market witnessed increased interest and investments from foreign investor in the following months. Private equity investments in real estate registered a rise at Rs 3,629 crore (as of August), compared to 2010. Moreover, equity funding during the year was increasingly dominated by the private equity market, as opposed to 2010. Even though initial inflows during the first three months of the year were on the low, FDI inflow in the following month was positive.
How would you sum up your assessment of the Indian real estate market?
India is certainly a market of the future, and a current dip in FDI is not a reflection of reduced interest from investors, or a slowdown in its potential. Two important facts are that the global economic scenario is undergoing some changes (not to be confused with a recession), and this is slowing the process of decision; and second, India itself is evolving. These two are creating a situation in which a cautious approach towards investment seems to be only justified. It's a coincidence of these that have perhaps brought the market down in terms of investments. The key for good investment, especially in an asset classes such as real estate, is the belief in the long-term fundamental.
How are retail rentals faring during the global slowdown?
Retail rentals across the US, the UK, China and India exhibited a mixed trend. India witnessed an upsurge in leasing activity. Consequently, there was growth in rentals on key streets across the country. Several major brands entered the market though cautiousness prevails, as many retailers are expanding despite the high inflation and operating costs. The China retail market, which is similar to India, witnessed demand for space on the high streets and an upward pressure on rentals. Many international retailers expanded their operations in the country.
What is your view on green housing? How is it catching up in different countries?
Buildings across the world account for a huge proportion of global energy and water resources. Above 50 countries across the world have formulated green building policies. In India, for instance, the approach is promoted at the local and city level, while in the US, China, Japan, and the European Union, there are regulatory agencies to ensure effective implementation.
