With the relaxation of foreign direct investment (FDI) norms in the Indian real estate sector, foreign entities are now flocking to strengthen their position by investing in real estate stock of completed or under construction projects. As a result, investments from foreign investors in real estate increased by 33% in 2021 compared to the previous year.
Some of the pros and cons that FDI in Indian real estate gives rise to are:
1. Easing of foreign direct investments has resulted in inflow of more capital into the commercial property sector. Private equity funds are also looking to leverage on this rising interest among foreign investors. This has given rise to strategic-level partnerships between foreign investors and reputed Indian developers mainly through equity deals for commercial as well as residential real estate projects. What’s more? Not only has the volume of investment increased, but there has also been an increase in the average investment size.
2. Just when the real estate sector is being considered as a great employment generator, the increased investment in this sector has been instrumental in the growth of cement, steel and other connected industries.
1. FDI stimulates competition and indigenous real estate firms fear that they may not be able to compete with capital-rich foreign developers. Another factor to consider is that large foreign property developers invest more in machinery and intellectual property than in wages.
2. Domestic companies, especially small and medium construction companies, fear hostile takeovers and loss of ownership with the entry of foreign players. They are wary of the loss of control that they may have to face. On the other hand, Indian developers who choose to partner with foreign players fear that these companies may withdraw their investment any time.
3. With drastic Government reforms in favour of FDI, India has emerged as a lucrative destination for foreign real estate investors. There is a huge demand for commercial and residential properties and foreign investments can give an impetus to this sector. However, rules governing partnerships and protection of small players must be in place for the economy to truly benefit from this measure.