Watershed moments in Indian real estate

November 19, 2014 / By

After over a decade of opening up the construction-development/real estate sector to private foreign capital, the policy has undergone several changes, and it is pertinent to list what may be called the watershed moments in the history of Indian real estate. While we focus more on the policies that opened the floodgates for FDI, the emergence of India as a major outsourcing/offshoring destination and its huge housing demand cannot be ignored. These factors, in their own right, prompted a more proactive policymaking approach to sell the India growth and returns story to global investors.

While outsourcing in India took small steps in the early 1990s, it was really the first decade of the new millennium that ushered in the emergence of the services sector, with India gaining global acceptance as an outsourcing destination. Stricter US visa norms also led to Indian technocrats finding it difficult to travel which made global technology firms invest in Indian offices to harness the local talent. Development of associated office projects also picked up momentum during this period.

The Department of Industrial Policy and Promotion under the auspices of the Ministry of Commerce & Industry, Government of India issued Press Notes through the 2000s to provide greater clarity on FDI flows in to the real estate sector.

The following table sets out the policy changes and key performance highlights during this period:

Source: JLL Research

The Press Note 2 of 2005 gave a huge boost to foreign investments in housing and township developments, with standalone commercial development projects also gaining traction.

In 2008, the government provided further clarity on 100% FDI in industrial parks, where under certain conditions, established industrial parks did not need to comply with the 50,000-sqm built-up area requirement spelt out under Press Note 2 of 2005.

The latest change has arrived in the form of the new Central Government dispensation reducing the minimum built-up area requirement to 20,000 sqm and reducing the minimum capitalisation by 50%. This is likely to boost capital inflow in the sector, while the recent Securities and Exchange Board of India guidelines on REITs are likely to further fuel investment growth in the commercial estate sector.

In another 3 years, we complete 70 years of independence and though skyscraper cities are still some time away, there is definitely progress on the anvil with focus on creating smart cities. Private fund participation will remain key to development and a proactive policy regime is likely to create a conducive environment.


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