Indian Real Estate: Risky Booms

By: Rajinder Dogra

Source: Economic Times

Indian Real Estate:

A Deutsche Bank Research report informs, whereas, there are significant risks inherent in the Indian real estate capital market, which, though presently small, despite all, has managed to achieve a remarkable growth momentum, especially in the private equity and debt markets.

While, private debt or bank loans to commercial real estate have been responsible for fuelling growth levels, both private equity and private debt markets are also set to grow significantly in the coming years, adds the report.

Enumerating the risks presently inherent in the sector, the report highlights liquidity, regulatory, overall market transparency, property market transparency and macro-economic risks as the five major threats, which are likely to continue for some time to come.

It also cites regulatory constraints being responsible for making it difficult for foreign investments to flow into the sector, such as, foreign investors requiring permission from the Reserve Bank of India (RBI) for owning property in India. Similarly, for capital repatriation, investors need RBI approval, while FDI is limited to a small set of opportunities, such as, real estate in small towns.

Then too, transparency is another aspect on which the Indian real estate sector ranks very low, with Transparency International rating India at 88 out of 150 countries, with regard to perceived corruption level.

Pointing to the need for more professional due diligence and valuation institutions, the report said, "Although market transparency has obviously improved, it is still hard to get reliable and consistent information on the Indian property market."

At the macro-economic level too, the report also cites problems, such as, inadequate provision of public goods i.e. education and transport infrastructure in many regions, while, stating volatility in interest rates, inflation and exchange rate risks have lessened, yet, they still have to be borne in mind.

It also highlights the fact; the Indian investment market is still in its infant stage, as investors face serious challenges in finding appropriate investment products. However, upbeat about the future prospects of the sector, the report points out that in 2005 nearly $850-million additional capital flowed into the sub-continent's real estate sector.

Even so, the Indian real estate sector, despite a temporary lull in its boom, continues to rake in investors and investments alike. As, everyone involved in the market realise, transparency and relaxation of rules and regulations are absolutely necessary for the good times to continue, requisite measures are being taken to resolve the issue. Already, developers and builders keen to ensure nothing disturbs the Indian real estate boom times are adhering to international norms and standards in their public offerings.

As the sector organises itself, there is no doubt the risks of investing in Indian real estate capital market will evaporate. Patience is the name of the game, as India cleans up its act in many sectors. This undoubtedly is bound to happen, as economic prosperity filters down to all segments of Indian society. Chak de to that, it is something everyone has been waiting for. Let the winds of change set in motion by the enterprising IT / BPO industry, sweep away the corruption, the long lasting legacy of the British Raj. If, it were not for the Nabobs of the East India Company and the British bureaucrats, India might have retained its honest past. But, it is a common Indian failing to learn the undesirable as quickly as possible, while refusing to be taught the best.

For example, instead of taking in the lesson of corruption so well at the knees of our British overlords, would that we had, instead learnt civic pride, courtesy in public i.e. polite driving with consideration extended to smaller vehicles, cyclists and pedestrians alike, opening and holding doors open for all, etc. etc., would that these were some of the habits imbibed.

Still, the IT / BPO industry has set the ball in motion and once the whole of India is prosperous, wanting for nothing, then the rest will fall in place. Just like weather seems to be responsible for a country's culture, as was seen in the hot spell experienced in the normally cool climes of Great Britain, which unusual hot weather saw the habitually calm, cool and collected Brits acting out the behaviour of unmanageable, unruly, unbiddable Indians. In other words, when the weather is pleasant, good manners come to the fore, but the heat only manages to bring out the devil in us all! Perhaps, if India suddenly turned into a cool and pleasantly green land, may be the Indians too would turn into well-mannered, unflappable earth dwellers.

Indians across the globe, Chak de!

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