A joint report by industry body Ficci and Ernst & Young has said foreign direct investment in real estate last year was the lowest in four years. However, private equity investments rose 47 per cent in the January-June period, compared to the same period last year. Howard Roth, global director (real estate), Ernst & Young, in an interview with Raghavendra Kamath, talks about his perspective on the Indian property market. Edited excerpts:
What is your outlook on property sales in India, given the rates have peaked and home sales are declining?
The short term outlook is challenging. If something is not affordable, people will not buy, developers cannot record sales, and there is pressure on their margins. But you should understand real estate is a very cyclical business, and there is a great opportunity in the medium and the long term.
Do global investors want to invest in countries like India, when valuations are much lower in the West?
For global investors, opportunities are there in countries like India. Investments in western economies are safe, but they cannot make the kind of yields they can make in developing countries. I think foreign investors have become comfortable here. They have set up teams here. They have adopted long-term views on the market.
But most global funds had burnt their fingers during 2005-08.
Yes. A lot of global funds looked to invest significantly in Indian real estate between 2006 and 2007. But they found India had a fragmented real estate market. Government regulations were changing, and the sources of funds had become restrictive. These funds need to be comfortable with the business environment and the governance here.
When home sales are declining and bank lending has become tight, how do you think Indian developers are raising funds now?
It is not an easy question, given the current set of circumstances. Domestic players have restrictions on raising both debt and equity abroad. I think this should be opened up to help them raise funds. For instance, in the US, the cost of borrowing funds has become zero, and there are very few new real estate projects which have come up.
