Business

FDI in real estate sector to touch $25 billion

NEW DELHI: Despite the real estate market confronting with a temporary depression with real interest rates hovering between 12 per cent and 16 per cent, an industry body has projected that foreign direct investment (FDI) element in the real estate market would increase by about $21 billion to touch $25 billion in the next ten years.

With real estate in India emerging as the hot market, industry body Assocham feels that foreign institutional investors (FIIs) are looking at India for parking their surpluses as returns on such investments will be the highest in the near future.

Releasing the Assocham assessment on FDI’s contribution to the domestic real estate market, its President Sajjan Jindal said that in future, higher interest rates would subside with India scaling a gross domestic product (GDP) growth of over 10 per cent for at least a decade and create huge space for overseas investors in the real estate sector. At present, the domestic real estate market is expected to be $15 billion in which FDI contributions are estimated around less than $4 billion. Bank credit to this sector by the end of 2007-08 has been estimated at over Rs. 3,50,000 crore, adds the Assocham analysis.

According to Mr. Jindal, another reason as to why the real estate sector would witness a boom is that at present foreign developers can undertake construction activities in a space of 50,000 sq. ft. as a result of which the FDI component in the domestic real estate market has been restricted to less than $4 billion. Assocham expects that the ceiling will be enhanced to a minimum of 2 lakh sq. ft. in the next ten years in a gradual manner.

Interestingly, the Assocham has also projected that the foreign component investors’ part for the real estate development will come through private equity instead of institutional mechanism.

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