After foreign equity, realty industry needs funding reforms

It is clearly evident from the foreign investment inflows, which has already jumped 34 percent to $7.23 billion, up from $5.3 billion in 2013-14. Private equity funding that rose from $670 million in 2013 to $855 million in 2014, during the January-September period, is also an indicator of this. According to an Assocham survey, there is also a one-third rise in enquiries from non-resident Indians for investment in Indian real estate.

Global investors are increasingly looking at property investment in India due to global economic improvement and better transparency and investment climate in India. They also find better investible assets especially in commercial real estate. Now, especially with India opening up the real estate investment trust (REITs) market, this interest has further grown.

According to a KPMG study, of the estimated 350 million sq ft of Grade-A office space, valued at around $65-70 billion across major urban centres, about 80-100 million sq ft, valued at $15-20 billion, will be REIT-friendly over the next three years. They are also looking at an immense opportunity thrown up by the Indian government's decision to develop 100 smart cities which need annual funding of 35,000 crore.

Notwithstanding all this interest of foreign investors in Indian real estate, the big question is if the foreign equity alone is the answer to massive funding requirement? Considering the current shortage of 19 million homes -- and to achieve the goal of housing for all by 2022 -- one needs close to 16.5 trillion ($275 billion) per year for the next eight years, whereas currently housing development is getting less than 8 trillion ($135 billion) of annual investment.

The challenge becomes all the more enormous as the real estate sector has been facing a crisis on household savings, equity funding and bank credit -- the three main sources of real estate funding. Industry statistics reveal that close to $1 trillion was invested in the real estate sector between 2008 and 2014 and 72 percent of this funding was met by household savings that have now considerably gone down.

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