Nov

15

FDI in India making big gains in 2007

Filed Under Emerging Sectors, IT BPO KPO Services, India Business, India Investment Opportunities, India Real Estate, India vs China, Indian Government, Mobile Telecom | 1 Comment

Before we delve more into trend shown in the recently published FDI (Foreign Direct Investment) in India, it is important to make it clear that we are referring to FDI equity inflows. Reason behind doing this is to ensure that we restrict our discussion to only investments that are coming in for long term and have direct impact on industry. The Department of Industrial Policy & Promotion, India published the FDI numbers for the period of April–July 2007 recently. For the full statistical details, please visit the article on their website (http://www.dipp.nic.in/fdi_statistics/india_fdi_july_2007.pdf).

Let’s start with the macro numbers to begin with. The FDI equity inflow for the first four months in 2007–08 is $5.614 billion which is 97% higher YoY when it was $2.848 billion. This growth rate is very impressive and is reflected in India being 2nd most attractive destination for FDI for 2007, according to UNCTAD’s world investment report published last month.

One note of caution though is that FDI inflow in July 2007 was $705 million, which compared to earlier three months, is significantly lower. We don’t need to read a lot into this but maybe it is good to bear in mind that the credit crisis really started getting serious during the later stages of reporting period and it would be interesting to watch out for next set of numbers coming out.

In the meantime, if we see which sectors of the Indian economy showed most consistent growth, then the top 3 by amount of FDI inflow are: Services Sector, Telecom and Housing & Real Estate. But if we compare the industries on the amount of FDI for last financial year and these four months, the top 3 most attractive sectors appear to be Housing & Real Estate, Construction activities and Telecom. For Telecom, I feel that the sector is now peaking and there are unlikely to be many opportunities in the future to improve on the current growth.

The Real Estate and Infrastructure sectors – both look very promising for investments because infrastructure has been identified as the primary bottleneck for growth in India and the government is making a concerted effort to provide more impetus to the sector. This involves deregulating to make it easier for companies to invest money, either directly, through partnerships or through exchange traded funds. This trend is reflected in the high growth shown by the FDI in the overall real estate structure, and this sector is expected to show similar impressive growth in FDI for next 3–5 years.

Nov

15

Commercial Real Estate- Investment Opportunity in India

Filed Under Emerging Sectors, India Business, India Investment Opportunities, India Real Estate, Indian Government, Metros, Tier-2 Cities, Tier-3 Cities | 1 Comment

Merrill Lynch estimates that real estate industry in India will grow to $ 90 billion by 2015. This growth is quite realistic as most experts predict a growth rate in excess of 35% year on year. These numbers are attracting a lot of attention by the investors worldwide and the media nowadays.

Let’s analyze the underlying fundamentals that will provide the impetus to growth.

India’s population is approximately 1.16 billion at present and it is expected to reach 1.4 billion by 2030 and 1.6 billion by 2050. In addition, India’s GDP growth is forecasted to remain around 8% for next decade or more. McKinsey Global Institute just came out with a paper that stated that the Indian middle class will be around 400 million by 2020.

It is important for us to scope out the discussions when we speak about the commercial real estate. I am limiting the scope of this discussion, for sake of convenience, to urban areas of more than 1 million residents as these would focus of majority of activity in terms of commercial real estate.

From a DB research report last year (2006), there are 44 such urban clusters in India populated by more then 150 million people. According to a UNDP projection, degree of urbanization will grow to above 40% by 2030. Projecting the growth of these urban clusters in the same period, we can predict that closer to 450 million people will live in those 44 clusters by 2030.

In this calculation we are not considering the number of cities that will be part of the 1 million plus cluster by then. So the population of major urban clusters is likely to grow by three times in just over next two decades.

Taking a simplistic view, all these people are going to need place to live and all the industries will need more structures to expand in. And then there is the whole auxiliary & retail growth that will be a direct result of increase in prosperity and number of customers. And this will drive the commercial real estate sector for next two decades justifying the boom we are witnessing in present times.

There is good news for the investors. Regulatory authorities are making effort to reduce the regulation and the entry barriers in this sector. Funds targeted for the real estate sector are a good way to begin. Also the relaxation in the norms for FDI (Foreign Direct Investment) is an excellent initiative. Already, the year 2007 has seen substantial increase in the amount of FDI dedicated to this sector.

And two days back, on November 12, 2007, the Reserve Bank of India (RBI) has also authorized forex to be utilized to fund infrastructure projects. Overall, a number of steps are being taken to enable the growth to happen in this sector.

For foreign investors/companies wishing to participate in this Indian real estate boom, the most practical and rapid way is through partnering some Indian company because it will readily provide the ‘must-have’ local insights required to make successful real-estate investments.

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