JLL expects 20% more FDI into Indian realty

Sharath Chowdary | The Dollar Business

Indian real estate is all set to improve its position on transparency with Real Estate Regulation and Development Act (RERA) 2016, which was recently passed in the Parliament. Ashutosh Limaye, JLL India Head – Research & Real Estate Intelligence Service, told The Dollar Business Bureau: The RERA is going to improve the standards of the real estate sector in the country. It will also help the sector attract additional foreign direct investment (FDI).

“Currently, Indian real estate is attracting an FDI of $2 billion per annum, but we expect 20% growth within a year, as the new real estate regulator goes effective. Overall, transparency and accountability levels will increase, which is certain to fetch more into this sector. Private equity (PE) funds will take renewed interest in finding the right partner, as very few developers can comply with the regulations,” said Limaye, while releasing White Paper on Real Estate Regulatory Bill.

In his words, the velocity of the property sales will be improved as the RERA provides a long term positive catalyst. This will increase the cost of capital for developers because going forward, they will have to look for equity, rather than structured debt to finance land buys—reason being, developers cannot sell homes before they get all the project approvals.

He added, “Developers will have to sell on the basis of carpet area alone, so there could be a revision in capital values across the cities, as well as, the cost of compliance. Also, builders will be left with restricted surplus liquidity until the completion of the project. Thus, the rise in land prices is also expected to remain under check as developers would find acquiring plots and using project revenues difficult.”

The project cost includes land cost, and since cash flows will be operated from an escrow account, banks and financial institutions will feel secured to lend money to the real estate developers. It will add comfort to debt servicing by the developer, but the speculators would initially feel difficult in the short term as they find more time to shift from the projects.

The RERA plans to bring real estate brokers within its ambit and expects them to be well organised by registering with the regulator to be qualified for property business. This will bring in transparency and responsibility, something that the sector lacks.

However, RERA mentions no punitive action for government agencies. JLL India commented, “The government should include measures it could take on erring government agencies in the RERA to protect the interests of the stakeholders. Also, not much is emphasised on under-construction projects and plotted development, as these affect a majority of home buyers.”