Indian Real Estate Is Back on Foreign Portfolio Investors (FPIs) Radar

Times have been tumultuous since the last year due to the onset of the ongoing Covid – 19 pandemic . Countries around the world went into a lockdown, economic health of nations deteriorated/, and stock markets plummeted. However, despite the depressing market sentiment, the real estate market in India has recorded solid growth

File photo
File photo

The work-from-home culture, low-interest rates, reduced stamp duties, and other factors worked in favour of the real estate sector in India. As a result, apart from domestic investors, FPIs (Foreign Portfolio Investors) have also reposed faith in India’s rebounding real estate sector. According to the NSDL data, FPIs invested over $497 million or ₹3,600 crores in the Indian real estate sector in March 2021, which was an increase over their investment of USD 58 million or ₹4.32 crores in 2020.

Why is India emerging back on FPIs radar?

One reason for the rebound of the Indian real estate sector is the focus of foreign buyers on emerging economies to bring optimum diversification to their portfolios. In this aspect, India ranks high given the growth opportunities in the country.

Another reason India is emerging back on the FPIs radar is the alteration to the Finance Bill during Budget 2021. As per the amendments, FPIs can debt finance Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). While this move was introduced to increase investment in the real estate and infrastructure sectors, a proposal by the finance minister to exempt taxes on REITs and InvITs dividends may further usher investors towards these investment instruments and lead to increased funding.

The change was initiated to garner more funds to support various infrastructure and real estate development projects, which is the main focus of the central government. This ease in rules also helps investors get higher returns.

Real estate and infrastructure development are the prime focus for the Indian government

The Indian government has increasingly shifted its focus on developing the infrastructure in the country. The government has brought momentum to several previously stuck infrastructure projects and initiated several other new projects in this space, including highways, expressways, metro-rail projects, and more.

Further, in Budget 2021, the Indian government has shown its commitment towards the real estate sector in ways more than one. Apart from enabling FPIs to debt finance REITs and InvITs, another Budget 2021 proposal will increase the tax relief to real-estate developers and homebuyers by increasing the ‘safe harbour limit’ from 10% to 20% for the primary sale of residential units. This created a positive market sentiment and resulted in high foreign investments through FPIs.

Moreover, with India expected to become the fifth-largest economy worldwide, investors from around the globe are looking at the Indian real estate sector for better yields. The measures announced by the government have encouraged higher participation by FPIs in the Indian real estate market.

The focus on infrastructure is expected to have a multiplier effect. Development of highways, metro-rails, expressways, etc., will allow the real estate sector in the country to spread even to the outskirts of the major cities as these areas will now be easily accessible.

Better connectivity will also optimize costs for real estate developers in terms of the lower land acquisition cost, which will further translate to lower price tags for end users. Better infrastructure and connectivity to the less-developed areas will also increase the security and safety of such places, ultimately benefitting the real estate sector.

Summing Up

Overall, this is the right time to invest in the Indian real estate sector. If you have plans to buy your own home or upgrade your house, the best time to invest in the real estate sector is now. If you are planning to buy property in Mumbai, the commercial capital of India, choose a project by Piramal Realty