Despite a sluggish performance in 2012, the Indian real estate sector eyes a significant rebound. Construction activity is anticipated to gain momentum, invigorating the market.
That said, the industry expects strong impetus from the Retail Foreign Direct Investment (FDI) policy. Elevated demand for retail spaces is poised to encourage real estate developers to initiate more commercial ventures, possibly triggering an overall surge in real estate activity nationwide.
Rising Commercial Real Estate Prices
Commercial real estate prices in India have witnessed a notable surge, particularly in major urban centers; however, the availability of quality retail spaces for lease remains limited. Experts foresee a boom in construction, further boosted by the entry of foreign multi-brand retailers.
Last week, the Lok Sabha, India's lower house of Parliament, approved retail FDI, and and the government also got the support of Rajya Sabha. These approvals potentially pave the way for further reforms.
State governments retain the discretion to restrict the entry of large foreign retailers within their jurisdictions. Though the approval of foreign retailers is subject to several stipulations, real estate developers are expressing optimism.
Anticipated Boom in Commercial Establishments
Real estate developers are projected to be among the most enthusiastic in welcoming foreign multi-brand retailers. Some developers are confident that they will secure the necessary funding for their projects. The arrival of foreign retailers could precipitate a boom in Indian real estate, particularly in the commercial domain.
The country may witness a surge in commercial establishments and shopping centers. While foreign retailers are permitted to acquire land, establishing their own stores is expected to be a protracted process. Also, they are restricted from buying and selling undeveloped land.
Foreign retailers must navigate various regulations set by the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry. Leasing properties is poised to emerge as the most viable option for these retailers.
This scenario is anticipated to escalate the demand for commercial properties across India. The short-term demand is expected to be particularly high, notably in major cities such as Mumbai, Delhi, and comparable urban areas. This is due to a lack of quality commercial office spaces and the likelihood that real estate developers will decide to construct newer ones.
The persistence of this short-term demand into the long term hinges on the ability of foreign retailers to overcome the hurdles in establishing their own buildings.
Several malls are currently under construction, with completion projected in a couple of years. Pankaj Renjhen of Jones Lang LaSalle India noted in his reports that rental rates are not expected to increase significantly. This is because current rental rates in many major metropolitan areas are already at unaffordable levels, he stated.