CW Report: Global Realty Investors Zoom in on India

The Prime Minister Narendra Modi’s repeated promises of simplifying the ease of doing business in India, (which is frequently seen as a quagmire of bureaucratic hassles and long-delays in securing approvals by foreign investors) and implementing a range of regulatory reforms, seems to have convinced the global investor fraternity, or at least those that were mulling investment’s into the country’s massive realty sector.

Endorsing this trend a recent report by leading real estate advisory, Cushman & Wakefield has ranked India among the top realty investment destinations for global investors, with the third highest growth in terms of investment volume which has been pegged at over 140 percent @US$5bn in 2014. An impressive performance, when compared to the approx US$2.1bn recorded in the preceding year.

The report further states that this was by far the highest level of foreign investments into the real estate sector in the last five years. A fact that has propelled India into the elite list of the Top Twenty highest priority investment markets for the year 2014.

The report further adds that the country’s fast growing residential sector got the highest share of investment at US$2.6 billion in 2014, with the commercial sector coming a close second at approx US$2bn. Of the total investment volume, domestic investors contributed approx US$3.12bn, clocking a growth of about 62 percent, while foreign investments stood at US$1.93bn showing a 38 percent increase.

The highlight however was the tune of corporate investment into the domestic realty sector, which witnessed a exponential increase in excess of 280 percent at approx US$2.5bn (in 2014), as compared to about US$900mn in the previous year.

It may be recalled that FM Arjun Jaitley has introduced a slew of measures to encourage foreign investors to invest in India, as part of his key proposals in the recent budget. These include the postponing the implementation of the general anti-avoidance rules (GAAR) by two years, a bankruptcy code (from the next fiscal), that will make it easier for investors seeking to exit their investments and a proposed Public Contract (resolution of disputes) law, to reduce the time taken in resolving disputes in public contracts in the infra domain.

Further, the FM also permitted foreign investments into alternative investment funds and a tax pass-through on category 1 and category-AIFs, wherein the tax will be levied on the investors in the funds and not on the funds per se. A positive step expected to boost fund mobilization efforts of PE investors.

More importantly, the budget has rationalized the capital gains for sponsors of REITs or real estate investment trusts and infra investment trusts (InvITs) which choose to exit at the time of listing. This however will be subject to payment of the securities transaction tax.

To further facilitate the ease of doing business in India for foreigners, the government has also recently launched an E-biz portal which integrates 14 regulatory permissions at a single source. The FM in his budget speech has also voiced his intentions to set up an expert committee to prepare a draft legislation which will expedite regulatory permissions.

Interestingly enough, India has been ranked a dismal 142 among the 189 countries in the World Bank’s latest ease of doing business index, falling two places from last year’s ranking.