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RBI Guidelines for FDI and ECB in Indian Real Estate

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Question by Mr Prasad: Could you be kind enough to tell me if we can bring FDI in debt form in India in real estate sector under current RBI Guidelines under automatic route and if you can suggest few names to whom we can contact for this for detailed procedures and documentation etc?

Answer: I think when you say FDI in debt form, you meant to say: External Commercial Borrowing (ECB), because FDI (foreign direct investment) stands for investments rather than debt.

The finance ministry allowed External Commercial Borrowing (ECB) in Indian real estate projects (in 2005) involving integrated townships of 25 acres or 50,000 square metres of more. However, the RBI’s position has to be checked on a project by project basis. Its not right to give a general answer on this website – so that other readers don’t take wrong conclusions.

As per our understanding, the RBI allows ECB in real estate projects involving integrated townships of 100 acres or more.

As you maybe aware, in real estate projects, significant capital is required upfront for land acquisition, which is classified as working capital. But end-use restrictions like not allowing ECB money to be used for working capital mean that Foreign funds (as debt) can’t be applied everywhere in Indian Real Estate.

RBI guidelines are often related to type and scale of the project. So if you are planning a large infusion of debt capital then please check RBI guidelines at a micro level.  Our team of legal real-estate experts could offer detailed help on specific cases. Feel free to contact us or ask any other questions.

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Foreign Institutional Investors Reduced Investment In Indian Real Estate Companies

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BSE reports indicate that Foreign institutional investors (FIIs) have reduced their investment in real estate companies, particularly Parsvnath Developers and Unitech by 0.8 and 2 percent respectively, year-on-year.

According to shareholding data available on BSE, the domestic financial institutions and banks have increased their inevstment in Unitech Ltd by over 1.5 percentage, while Foreign institutional investors (FIIs) have reduced their stake.

In the case of Parsvnath, there were marginal changes in the institutional shareholding (mutual funds/UTI and financial institutions and banks) within the non-promoter category, even as the ‘individual’ holding rose by just less than a percentage point.

“The FII stake in Parsvnath had almost doubled between June 2007 and December 2007, but came down subsequently, in line with market trend,” a market observer said.

In the case of Unitech, the stake held by various mutual funds and UTI stood at 0.51 per cent on June 30, 2008 — a bit higher than 0.25 per cent in 2007.

According to market sources, while FIIs have trimmed their holding in Unitech, the shares sold by them may have been picked up by private Indian insurance firms.

So there is capital in the market that is willing to pick-up whatver real estate equity becomes available. Whether the current Indian Real Estate Stock P/E is good for buying now, is the big question.

Obviously, different people are seeing things differently!

India Real Estate Developers, India Real Estate Investments, India Real Estate News, India Real Estate Trends

Indian Real Estate Trends 2008

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Indian Real Estate Trends 2008

  • Cost of real estate has risen considerably over the last 10 years. In fact, Investment in a property has turned into a productive option for majority of people. In most cases, the prices have only gone up.
  • We’ve got property developer billionaires in this cash rich sector. The driving force behind this Indian real estate boom is the steady extension of ITES, BPO, KPO, and Outsourcing services and the subsequent development of the middle class status.
  • Both commercial and residential growth are running at a marathon pace.
  • The most favoured cities for investors are Bombay, Bangalore, Hyderabad, Madras, Gurgaon, New Delhi, Pune, Chandigarh, Calcutta and Jaipur.

Reasons for Growth

One of the main reasons for this boom is that in the year 2006, Indian government give consent to 100 percent foreign direct investment. This has enabled foreign residents maximize their profits through bidding for Indian real estate along with their local associates.

The growth may be also attributed to several factors such as economic reform and liberalization, increased globalization, increase in business opportunities, heightened equity market activity, increasing demand, enhanced transparency, legitimized funding and favourable demographics.

Real Estate Venture capital funds have propelled Indian Real Estate industry to become one of the highest investment generating avenues. Also the fact that India’s seven Real Estate powers like DLF and Unitech are their in the Forbes list of 54 Indian billionaires crystallizes the sector’s strength. Industry was able to attract significant interest from domestic and foreign investors keen to be a part of the real estate growth

The Future Trends

The real estate industry is estimated to reach $60 billion by 2010 with a growth rate of 30 per cent. The industry entered the Dalal Street in a big way and floated 12 public issues in the year, making it a leading sector in terms of fund raising. Currently, private property developers are largely focusing on constructing housing units for middle class and poor. Rising disposable income and the trend towards nuclear families are the significant factors pushing the demand for residential properties in the country.

Many eminent foreign builders like Dubai-based Emmar Properties have shown keen interest in Indian real estate and have joined hands with Indian constructors for investment. Other major foreign players in Indian realty market includes Japan’s Kikken Sekkel, UK’s High Point Rendel , Cesma International and Lee Kim Tah Holdings from Singapore, etc. It is expected that all these foreign investors will exercise latest technology, management skills and regulation policy to make it big in Indian real estate market

Another factor that plays a critical role in the current trend in the Indian Real Estate industry is the development of physical and social infrastructure. Residential, commercial offices, retail and hotels have their own place in the market. The presence of real estate majors from within India as well as abroad have ensured constant supply of capital which is absolutely necessary for the large scale of development that has been undertaken, especially in the infrastructure expansion of roads, airports, ports and SE’s that require large funding India’s biggest realty developer, DLF continued its supremacy over others. The firm launched the a mega IPO of over Rs 9,000crore, followed by HDIL’s Rs 1,700 crore and Puravankara Projects’ Rs 850 crore.

About the Author: Rahul Boss is working as an architect in India has developed trustworthy commercial apartments.

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Mumbai Real Estate Market Updates & Trends

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Despite the ‘developing nation’ tag, India is one of the leading property markets worldwide and property builders and developers across the country provide a back bone for this development.

The aim of India Real Estate.org is to help Indian real estate investors across the globe, in learning about good opportunities, and reliable builders/developers. Indian companies are more resilient than ever to a global downturn these days, with lower borrowing costs and healthier debt-equity ratios.

Now coming to the point….Mumbai real estate is among the most expensive in the world – more than that of Tokyo or New York – and there is no shortage of those who can afford to pay. The city also attracts millions of low wage workers every year, and there are ever-expanding slums that house more than half of the city’s population.

Mumbai real estate is a multi-billion dollar market on a daily/weekly trading basis. In addition to sea view penthouses on Marine Drive, Worli, Juhu etc, there are luxurious duplexes across the city….with many new residential projects to fully furnished offices and ‘built-to-suit’ commercial spaces including upscale multi-family apartment communities.

Some analysts say that Mumbai real estate has started seeing a slide in property prices; others may witness the decline gradually. Some experts believe that over the next three to six months, the liquidity crunch will have its full impact on property prices.

Market estimates say many people who had purchased property for investment purposes had a big exposure to the equity market, which is currently 25% down from its high levels in Dec 2007. This means, the turmoil in the stock market may lead to drying up of available free cash, leading to default in paying installments.

That said, Mumbai real estate market has pockets of attractive opportunities even at high P/E levels. Investors have many good reasons to invest in Mumbai property market. Mumbai is the India’s business capital, and the most populous city of India.

Investors and HNIs have been investing in various pre-leased properties having insurance, banking, IT/ ITES, residential and retail sector occupants. Investors should be cautious about any and all stock recommendations and should consider the source of any advice on stock selection. Various factors, including personal or corporate ownership, may influence or factor into an expert’s stock analysis or opinion.

Another interesting trend is the remodeling of commercial spaces to retail spaces. The property values for commercial spaces are touching skies and developers are finding it difficult to sell their commercial/office property. Hence, many of them are positioning their property as retail space in a hope to find more takers.

Investors are targeting Navi Mumbai because the prices here are on the increase. It is a newly developed area just across the harbor.

Unitech, India’s second largest developer, was involved in two such land deals. It snapped up 1,750 acres in Vizag for Rs 3,350 crore last year and won 340 acres in Noida for Rs 1,582 crore in 2006, while India’s biggest real estate developer DLF clinched a 38-acre land deal in the national capital for Rs 1,675 crore. Unitech is expected to close FY08 with revenues of Rs 4,350 crore and a net profit of Rs 1,650 crore.

Developers are constructing properties with facilities and amenities at par with international standards. Yearly appreciation on commercial real estate market across the Indian metro ranges from 9 to 11%. So there are many opportunities there at all levels: residential and commercial real estate.

About the Author: Shankar AVSB of 7Avenues Private Equity, who is an investor in Indian Real Estate. He believes that Mumbai real estate presents great opportunities in both bullish and bearish market sentiments. He is based in London.

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