FDI Relaxation: Impact on Indian real estate industry!

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The government’s decision to offer 100% FDI under the automatic route will give a much needed impetus to the brokerage segment in the country and also attract foreign investments.

According to the various real estate industry veterans, RERA and other statutory reforms have lead to the consolidation of the real estate market. The consolidation is primarily witnessed in the developer’s and property consultant’s market. Consolidation is imperative for the efficiency of a sector, as it would lead businesses to focus on their core operations and at the same time be innovative. Furthermore, to make the market more competitive and efficient, the next predominant step has been taken by the government to announce 100% FDI (Foreign Direct Investment) through automatic route i.e. no approval from Reserve Bank of India for owning 100% company in India for real estate broking services.

Property consultant plays a vital role in the real estate market by understanding the basic as well as latent needs of the prospective customer. Based on this, property consultants not only find an ideal match, but also negotiate and assist throughout the process of deal-making, keeping in mind the interest of all the parties involved. In India, the market of property consultants a.k.a. broker is matured. Moreover, the service sector has been the most attractive hotspot for FDIs. Owing to this GOI (Government of India) has reclassified brokerage services and graded it out of the context of real estate business.

Earlier, foreign companies would enter the Indian market though a local Indian partner, due to the cap on FDI. However, this shareholding pattern might change, as foreign companies can now wholly own the property consultancy firm.

The advantages of the FDI policy introduced by RBI are –

  1. Increasing competition would lead to better efficiencies and service innovations. This will enable transparency, trust, reduced timeline and better experience in buying a property.
  2. Better knowledge assimilation and dissemination as comprehensive training and education programs are likely to happen,
  3. As international property consultants operate in various market segments they will add the market depth and bring in pricing efficiency of brokerage services.
  4. Foreign companies looking for geographic expansion in their brokerage businesses will see India as a new investment opportunity. Also, foreign private equity players, institutional investors and high net worth individuals from different disciplines are likely to consider Indian brokerage sector as a new investment opportunity.
  5. As India will see the advent of trustable as well as international brands and players, it will improve the scope and probability of NRI investors in Indian real estate market.

As and when the sector becomes more and more organized, the small and local brokers may not be able to scale up their services and eventually fade out from the system. There would also be a lot of consolidation in the market with the small players joining hands with the more established ones.  However, there would still be a lot of gaps left in brokerage service sector which can be capitalized by the new players.

The bottom line of any policy is to improve the overall health of the business by holistically considering the needs of all stakeholders. 100% FDI in real estate broking services is one such move! Furthermore, this would enhance the GDP (Gross Domestic Product) of India, as there is a positive relationship between the GDP with FDI flows. Lastly, evolution of an industry happens when there is considerable competition, especially a global one!

Author Name : Bhavya Gupta