India has witnessed the sharpest appreciation in real estate prices in the last couple of years, according to data from the Global Property Guide, an organization which collates real estate data from across the world.
Property prices in Delhi witnessed the steepest appreciation of roughly 60%, when compared to cities from 43 other countries, for which figures were available from that organization. Interestingly, while this data set has information only for Delhi in India, official data on Indian cities suggests that Jaipur has seen an ever faster rise in residential property prices of 67% over this period.
Delhi’s 60% rise in property prices over the past two years is nearly 20 percentage points higher than Brazil’s Sao Paulo, which is the second fastest rising international property market. From the first quarter of 2011 to Q1-2013, Sao Paulo, the largest city in the Americas in terms of population, witnessed a 43% increase in real estate prices.
Hong Kong, the third fastest rising market for the same period, saw its property prices going up by 33%. Dubai also appears to be in a recovery phase after the bust of its early 2000s property bubble. The city witnessed a 29% increase in its real estate prices in the last year. The West Asian city had witnessed a marginal decline in prices between Q1-2011 and Q1-2012.
In the past two years, for which comparable data is available, only 12 of the 43 countries saw double-digit growth in property prices. Most of these are emerging economies, not surprising given the fact that Europe has been battling the century’s worst recession. Other countries where property prices went up by more than 10% are Turkey, Estonia, Philippines, Norway, Iceland, Indonesia, South Africa and New Zealand.
Read more: The Economic Times
Realty project costs surge by up to 20%
Real estate sector has witnessed substantial increase in project costs during the last couple of years as foreign fund flow has almost dried up, while interest rates and input costs have headed northward, said Jones Lang La-Salle in a report.
While rising interest rates have led to costlier bank credit, the strict RBI guidelines have made real estate lending all the more cumbersome, the report pointed out. “Currently, the costs of key inputs for real estate development are up by at least 7%. This is over and above a rise of about 25% last year,” JLL said, adding that labour cost is up 10-15 % and the prices of steel and cement have gone up by about 7%. “The net rise in construction costs is approximately 20%. Therefore, the Indian real estate sector is in dire need of foreign funding, both for maintaining growth and containing costs.”
As the Real Estate Mutual Funds (REMF) remained a non starter, FDI is the only saver which the real estate sector can look up to, JLL said. However, the ever-changing policies on FDI, taxation and development, coupled with lack of transparency and a high amount of friction in approval mechanisms have led to an uncertainty in yields and tenure of lock-in for investments in real estate, the report said, adding that this has proved to be the biggest stumbling block in attracting FDI.
Read more: The Times of India
FDI into India rises 24% to $3.95 bn in April-May
Foreign direct investment (FDI) into India increased by 24.2 per cent year-on-year to USD 3.95 billion in April-May, Parliament was informed today.
According to data from the Department of Industrial Policy and Promotion (DIPP), the country had received USD 3.18 billion of FDI in April-May 2012.
FDI inflows have a positive impact by supplementing domestic capital, technology and skills of existing companies as well as through establishment of new companies, Commerce and Industry Minister Anand Sharma said in a written reply to the Lok Sabha.
Replying to a question about FDI in aviation, he said: “Keeping in view the sensitivity of the aviation sector, investment by foreign airlines has been allowed only up to 49 per cent and on the government approval route.”
India attracted USD 22.42 billion of FDI in 2012-13 compared with USD 35.12 billion in the previous fiscal, he said. Sectors that received large FDI inflows include hotels and tourism, pharmaceuticals, services, chemicals and construction.
Read more: The Economic Times
The need to have FDI in real estate sector
While banks have aided most real estate development in the past, the cost of debt is getting higher by the day. The strict guidelines introduced by RBI have made real estate lending even more expensive and cumbersome.
Currently, the costs of key inputs for real estate development are up by at least 7 percent. This is over and above a rise of about 25 percent last year. Labour cost is up 10-15 percent and the costs of steel and cement by about 7 percent. To add to this, funding costs have headed north.
For Mumbai, the recent DCR amendments would add to developers’ costs by about 15 percent, which includes the fungible premium payable if the builder opts to take the additional 35 percent FSI option.
Cumulatively, this comes to an approximate hike of 20 percent hike in construction cost, which most developers would pass on the consumers. The Indian real estate sector is in dire need of foreign funding – both in terms of maintaining growth and for the benefit of consumers.
FDI – The only feasible option
Unlike most developed economies, India does not allow REITs (Real Estate Investment Trusts). Many would point to the M&A route, but this is also a lacklustre option as it comes at a cost of about 20 percent.
Read more: Money Control
Centre mulls annuity model
The government is planning to award infrastructure projects on an annuity basis to hasten these, with an eye on limiting its fiscal deficit. This will also help meet the target of spending $1 trillion between 2012-13 and 2016-17 in infrastructure development.
The main advantage with annuity-based public-private-partnership (PPP) model is that the question of making the payments would come up only after a particular project is completed. The payment can be spread over a period of 20 years or so, according to official sources.
“This can be effective for any kind of infrastructure projects on railway, ports and even highways. The advantage with annuity is that the burden of annuity payments would arise on completion of projects and would be spread over many years. As a result, the capex in a downturn can be enhanced without any immediate impact on the fiscal position,” a senior official told Business Standard.
The Centre is planning to implement the same model in an effort to push the National Manufacturing Policy.
“This can be done in any sector. This is a big idea that is emerging. The government is trying to find out smarter ways for creating more demand for the domestic industry. In terms of environmental clearances, all public sector projects are cleared now. We are now pushing for private sector clearances to fast-track the pending projects,” he added.
Read more: Business Standard
How can a foreigner invest in India?
Are you an NRI keen to invest in your home country, or simply curious how foreign institutional investors route their money to India for growth? Go through the various options available for channelising the foreign wealth.
Foreign investment routes in India:
Foreign Direct Investment
A Non-resident entity can invest in India, except in the prohibited sectors or activities. These investments are subject to Foreign Exchange Management Act (FEMA) regulations and the FDI policy, including sectoral caps. An Indian company can receive FDI through:
Automatic route: FDI is allowed without prior approval either of the government or the RBI in sectors specified in the FDI policy. These are, typically, strategic long-term investments.
Government route: FDI in activities not covered under the automatic route requires the prior approval of the government, which is considered by the Foreign Investment Promotion Board ( FIPB), Department of Economic Affairs and Ministry of Finance.
Foreign Portfolio Investment
Portfolio Investment Scheme (PIS) allows eligible entities, such as foreign institutional investors (FIIs), non-resident Indians (NRIs), persons of Indian origin (PIOs) and qualified foreign investors (QFIs) to invest in shares and convertible debentures of Indian companies, and units of domestic mutual funds, on any of the Indian stock exchanges.
Read more: The Economic Times
Time to reboot education system, says PM’s advisor
It is time to reboot the education system in the country, which is in need of resuscitation, said S Ramadorai, advisor to the Prime Minister in the National Skill Development Council and the vice-chairman of Tata Consultancy Services.
Delivering the Second C K Parhlad Memorial Lecture, organised by Aspen Institute of India and Confederation of Indian Industry (CII) recently, Ramadorai said: “We are not working smart, not learning from what is happening in other nations and not planning ahead.”
He said that the education system, as a conventional model of assorted brick and mortar schools, would soon be questioned as the global universities were going online. He said that most universities, below the upper tier, would have to integrate with a second virtual university into the standard one. He also highlighted how the US is planning to provide more than 99 per cent students with high speed Internet. He said that the 21st Century model demanded shedding of traditional mind sets. “Online resources like wikis to broadcast, are allowing children and adults to pursue education of their own. This can also help empower children in rural areas of India, which lack quality teachers.” Ramadorai said and added that schools and universities on cloud computing was real possibility.
“We need to work out a plan to make on-demand learning, a reality using the national IT backbone on the rural broadband which is currently under implementation,” he said.
He also highlighted how several IITs, Nasscom and several private technology companies had joined hands to provide free online courses. “This could help 1,00,000 to 1,50,000 people a year and make them ready for job,” he said.
Read more: Indian Express