Thursday, November 19, 2015

Eased FDI norms may hike realty prices instead says experts

Last week the central government in a directive eased the norms of the Foreign Direct Investment in the real estate sector. The directive removed the restrictions regarding the size and the volume of investment. The realtors say that earlier the foreign direct investment used to come to the real estate sector in the way of debt capital or at the entity level. So many experts have pointed out that earlier the FDI was utilized in very large projects and as from now on the restrictions on the size of investment has been removed there will be investment on the affordable sector too which will boost the segment. But another section of the experts very ably argue that it is not the case at all. They opine that FDI in the affordable sector will further fuel the prices instead. According to them the cost of the FDI capital is not cheap. It comes tagged with an interest rate of 20 to 25 percent. It is quite natural that if the builders and the developers buy land and property at this rate of interest, they have to raise the price of the apartments in order to recover the amount.  This seems as explains the experts that the market is driven by the investors.

This section of the realtors and the experts argue that there can be an imbalance in the urban economy because of the FDI pouring in and creating a vicious cycle from which it will be difficult to get out. Rather than that they argue that the government should urge the banks to lend capital to the developers at a cheaper rate of interest.  There should be a condition that they start the construction of the houses immediately and should not be allowed to sit on the land plot for an unlimited period.
This creates the accumulation of unproductive assets and also shortage of houses.

Other experts like the top officials of the renowned realty consultant Knight Frank India Pvt. Ltd. said that from the last three consecutive festive seasons the realty sector is going through a bad time. It is not able to generate or raise funds and thus the fund raising is of highest priority for them. In these circumstances Foreign Direct Investment (FDI) seems to be the only option of infusing capital in the business.  Thus the relaxation of the size of the project in terms of FDI will not have an impact on the short run.  But a section of the experts still feels that in this phase of lull where the sector is gasping for capital and urge for a renewed interest from the buyers, extra liquidity will surely help the sector in a big way.

Different other veterans and the experts from various associations of the realty sector like the experts from the Builder’s Association of India said the flow of FDI will have a positive impact on the residential real estate.  Easy flow of money at a cheaper interest rate will help projects in places like Mumbai where the land prices are about 70 percent of the total outlay.  He opined that property prices are bound to reduce if the developers are able to buy land with easy money available.  But he also reiterated that one year of time on the ground is required to see the outcome. Let’s wait and watch.

No comments:

Post a Comment