Source: www.asiaecon.org |

Indian Realty Attracts Gulf Investors

Gulf Arab investors are looking to pour money into India's booming real estate market. The country's 8.1 percent economic growth in 2005-06 and a rapidly growing middle class have attracted the attention of developers and retailers.[1]

Gulf Arab investors are looking to pour
money into India’s booming real estate market.
The country’s 8.1 percent economic
growth in 2005-06 and a rapidly growing
middle class have attracted the attention of
developers and retailers.[1]

Gulf Arab countries have a $227bn oilfueled
current account surplus[2] to invest
after the decline in Arab stock markets this
year[3], and they know the Indian market
well. Indian entrepreneurs have been conducting
business with Gulf States such as
the United Arab Emirates (UAE) for years,
and many of the professionals managing
Gulf funds are Indian expatriates.[4]

The Reserve Bank of India (RBI) has prohibited
most foreign investments for fear of
a rise in inflation rates. The Indian government
also enforces certain regulations in
order to promote stable, long-term capital
and discourage speculators. There is a
$10m minimum investment size, and companies
cannot withdraw these funds for at
least three years.[5]

The RBI knows it risks curtailing market
growth if it continues to restrict investment.
[6] Outside investment will increase transparency
and liquidity. Large-scale projects
should also foster economies of scale.[7]

The relaxation of real estate foreign direct
investment (FDI) restrictions in April 2005
has drawn a number of Arab investors to
India.[8] Gulf investment flows are minimal,
[9] but India can expect to see drastic increases
if restrictions are further reduced.
[10]

Future Developments Plans

The Dubai-based Emaar Properties is
launching a $4bn investment plan to develop
small towns in partnership with Indian
developer MGF. The projects will be located
in or near the capital New Delhi and
throughout the Maharashtra state.[11]

ETA Star and Nakheel, two other Dubaibased
companies, are planning to build residential
complexes and hotels respectively.[12]

Global Investment House, a Kuwaiti company,
is considering properties in Bangalore,
Chennai, Hyderabad, and Puna. It
aims to invest $100m in residential and
technological establishments in these cities.
[13]
Istith
mar, a leading investment house in
Dubai, has partnered with American International
Group to create a real estate fund
focused on emerging markets, including
India.[14]

Potential Barriers

Those looking for immediate returns may be
deterred by high acquisition costs.[15] The
most expensive properties can be found in
India’s major cities New Delhi and Bombay.
A buyer can expect to pay as much $1,000
per sq ft in Bombay and around $400 per sq
ft in New Dehli. Bangalore and Pune trail
closely behind at $125 per sq ft.[16]

Investors may face other potential barriers.
Development is vulnerable to policy shifts
and other changes in government.[17] A
Dubai company, TECOM, who has already
started work on a $1.2bn technology park in
Kochi has come across this problem. The
recently elected communist party in Kerala,
where Kochi is located, is critical about the
project. The two parties recently negotiated
the issue. The results are yet to be announced.
[18]

The acquisition of property is also problematic
due to restrictions on agricultural land,
and partnerships with local developers are
difficult to secure.[19]

Current foreign aid accounts for a trifling 1
percent of the GDP. Many obstacles still
remain as the real estate market opens to
outside trade. Indian policy makers recognize
the need to encourage aid. This should
steadily increase the FDI.[20]

Source: www.asiaecon.org |