‘Foreign investors shying away from realty sector’

With the real estate industry reeling under stagnancy for long, foreign investors are withdrawing from the sector, show reports.

A note by Jones Lang LaSalle (JLL) India says two-thirds of the office space construction in the country is on in Mumbai, Delhi and Bangalore, the only three cities where capital is still chasing real estate but only domestic funds such as Kotak Realty Fund, Red Fort Capital, ASK and IndiaReit are still in the fray as far as investing in realty is concerned. It states, "The days when international capital was seduced by the Indian real estate are over, at least for now." Adding that property valuations are at an all-time low, it says, "Global funds have turned a jaundiced eye on the Indian real estate story, largely because of the negative press and ongoing policy paralysis that continues to plague the sector."

Shobhit Agarwal, joint managing director for Capital Markets, Jones Lang LaSalle India, said funds have lost interest in both affordable housing as well as luxury housing. In case of the former, the loss of interest is due to low returns and long gestation periods. "Luxury housing is also out of favour because project sizes are not large enough to warrant FDI or attract domestic funding. Today, 80 percent of all available capital for real estate is being plugged into mid-income housing, projects with units price-tagged between Rs 50 lakh and Rs 1.5 crore."

The extent of contribution of foreign funds is outlined in a recent report by property consultants Knight Frank that says since 2005, Rs 213 billion has been raised by 21 realty companies through IPOs and FPOs in the country. Of this, 68 per cent or Rs 145 billion, was raised in 2007 itself following the opening up of FDI in real estate. The report adds that shrinking of funding has adversely affected holding capacity of realty developers; this may come as a positive news for genuine home-buyers who have been long waiting for developers to blink first.

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