by Akhilesh K. Prasad
In January this year, the government further relaxed FDI policy and approved 100% FDI under automatic route in construction development; inclusive of townships, housing, built-up infrastructure and real estate broking services. The government also clarified that real estate brokerage did not amount to real estate business and is therefore eligible for 100% FDI under automatic route. The move was welcomed by the industry. It was said that the announcement could not have come at a better time, given that coming out of a dull period, the industry was poised to receive significant supplied in the near future. Industry insider also expected that the move, coupled with the implementation of RERA 2016, would bring in clean money into the system and help establish international best practices.
Last month however, it was reported that India had dropped out of the top 10 destinations for Foreign Direct Investments (FDI) list in terms of attractiveness in 2018, for the first time in four years. According to the AT Kearney report, this was a result of demonetization and implementation of GST. The MoS for Commerce and Industry also submitted in Parliament that as many as six sectors had failed to attract any FDI in 2017-18. According to the latest data released by the Department of Industrial Policy and Promotion (DIPP), FDI inflows growth rate recorded a five-year low of 3% at $44.85 billion in2017-18.
The fall in the growth of total foreign investment in India was despite the improvement in our ranking in ease of doing business. Experts are of the opinion that India still needs to reach a critical level in ease of doing business to create enthusiasm for foreign investors. Also, the fall in FDI has followed a fall in domestic investments over the last couple of years. The low growth of FDI in the consumer and retail sector was also attributed to the uncertainty and complexity of FDI policy in India.
As far as real estate is concerned, a survey by Indeed has found that there has been a drop in job postings in the real estate sector by 8% in May 2018. At the same time last year, post the implementation of RERA, an increase of 8% had been reported. This notably points to a slowdown in growth in the realty market.
Data with respect to total foreign direct investment in real estate is yet to be updated by the RBI for the year 2017-18. However, the data for the four previous years points to a decline. In the year 2012-13, the foreign investment in real estate was $197 million. It grew marginally in 2013-14 to $201 million, and remained constant in 2014-15 at $202 million. Thereafter in 2015-16, there was a huge decline in real estate investment to $112 million and $105 million in 2016-17.
FDI is not only important for real estate, but India also requires huge investments in the coming years to overhaul its infrastructure sector to boost growth. A decline in foreign inflows could put pressure on the country’s balance of payments and may also impact the value of the rupee.
An MBA by qualification, Akhilesh has dabbled into various businesses. He is a keen debater, data miner and analytically inclined. His blogs tend to present a fresh perspective on any given matter.