Sharp drop in foreign investments over past two years


NEW DELHI: Indian real estate market, despite its opportunities, has seen a sharp drop in foreign investments over the past two years, and in future, global investors may be more cautious investing in markets that lack international standards, says Sean Tompkins, global chief executive officer of UK-based Royal Institution of Chartered Surveyors (RICS), a professional qualification and standard setting body for land, property and construction sectors.
The country’s real estate sector saw close to $20 billion in investment between 2006 and 2009 but only about $2-3 billion of that has seen an exit yet, after over six years of investment. India, he says, hasn’t really delivered since 2005 on the promise that it held as an investment destination and today most of the capital finding its way into Indian real estate is really domestic capital.
Investors of all types are a bit wary and cautious because of the global slowdown, and it’s critical to create the right conditions to make an investor more comfortable for investment.
“There will be an expectation that standards would rise and I believe that those countries that are able to provide safe and high standard environment in real estate will benefit from significant investment flows,” says Tompkins.
For a number of private equity investors who invested between 2006 and 2009, returns have been subpar from what they had hoped and been promised. Many expect to lose money because many projects have not taken off and many others are stuck in litigation with their investee companies.
Tompkins says India needs to change its mindset and look at real estate and construction as a proper profession like it is in the West if it has to come up to global standards.
“The biggest challenge for investors is that, though they love the attractiveness of markets such as Brazil, Russia, India and China, the difficulty they have is that there isn’t a profession to give them the advice or the standards to give them comfort.”
For India to be a major world economy with some great winning cities, Tompkins says it’s necessary to train people in the real estate and construction professions.
There is no shortage of capital flow globally, but what’s dictating the flow of money is professionalism and international standards, which India needs to improve if it were to sustain its massive growth in urbanization, to the tune of 40%.
For Tompkins, India’s biggest challenge is urbanization.
Countries that are creating successful winning cities – where people want to live in, work in and invest in – are thinking about everything.
“But the problem with most governments is that they think in silos, so you will have one bit thinking about housing, one about infrastructure, one about finance, but all those need to come together, which is the challenge in most major developing countries. How do you plan for that, because if you don’t, you might end up with big cities that don’t work,” he says.