According to the real estate experts, the prospect of getting superior returns in the U. S combined with less asset price distort the risk-reward balance in opposition to upcoming realty markets of India. Thus, there is a high probability of foreign investors avoiding the Indian real estate market.
According to another expert retardation of general growth and low interest rates have served as a double blow to the real estate developers even as the alleged risk-reward ratio for India is going downhill. For instance, the pension funds in US have the opportunity to invest in India or other markets. They opt for other option because of better level of available information. According to another expert in real estate, there is no developmental liability in other markets as these are existing properties. Further, the absence of political or currency risk and the prospect of approximately 18-20% returns in the US make it very attractive for investment and, they are not particularly eyeing for additional 5% they may gain coming to India. Considering the elevated risk that the investors have to take in India, this minor extra return seems to be rather inadequate.
This might be an early phase but, for investments, it may result in investments decisions against Indian market. Investors have plenty of doubts and asking many questions and deals are getting cancelled. Term-sheets are deferred. Citi Venture and AIG backed out of a proposed investment of Rs 1500 crore to be made in Mumbai-based real estate developer Akruti City in April. There is a hold-up or delay because of slow decision-making by the PE majors. According to the experts, this is happening because PE majors are not sure. However, developers are commencing to recognize the actuality and coming with better terms and condition. This is clear from the financing terms that they are accommodating nowadays with the growing demand of economy.
If a developer and a PE major invested in a ratio of 75:25, the profit-sharing was partial to promoters by the ratio of 60:40 beyond a specific interest rate of 15-16%. This has now become almost 20-22%. The coming year could lead to more confusion, as inflation would elevate the rates of interest rates. Deficit financing for oil subsidy would also place the economy in much strain. And thus real estate in India is all set for a hard time. This indicates an end of the days of extraordinary profits, and real estate developers would be forced to price their products affordably. Further, the passion to purchase lands would slow down and consequently India property prices would be corrected. The aggressive land purchasers, having a tendency to acquire lands in large scale will definitely be in a restrained mode for inadequacy of fund. A rectification in this regard will be good option.
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