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In 2003-04, India received total FDI inflow of US$ 2.70 billion, of which only 4.5% was committed to real estate sector. In 2004-05 this increased to US$ 3.75 billion of which, the real estate shares was 10.6%.
Policy changes introduced by the Government in February 2005 allowed 100 per cent foreign investments in construction projects with fast-track approvals. But the real attraction for foreign investors was the potential investment returns of 25 per cent and more in Indian projects that might be hard to come by in the US and in Western Europe today. A report by property consultants Jones Lang LaSalle estimates that US$ 10 billion foreign investment will be injected into the Indian real estate sector in the next 12-18 months.
With this change in government policy on FDI, the first half of 2005-06 attracted more than three times the foreign investment at US$ 7.96 billion. In the next five-year period it is estimated that investments worth US $ 25 billion will be made within the urban housing sector. The Central government allowed up to 100% FDI for setting up townships in 2002. However, the flow of FDI investments had been thwarted by the 100 acre criterion; since acquiring such a large chunk of land was impossible in metropolitan cities and even satellite cities and state capitals.
However a landmark decision taken by the Union government in 2005, where the minimum land area for development by foreign investors was lowered from 100 acres to 25 acres has thrown open the lucrative parts of the Indian realty market to global investors.
In mid-2007, Morgan Stanley closed a deal worth about US$ 150 million with Oberoi Constructions in Mumbai. The Nakheel Group in Dubai entered into a US$ 10 billion deal with DLF for residential projects in Tier I and II cities. This was followed by three financial institutions -- Khaleej Finance and Investment (KFI) from Bahrain, Kuwait Investment Company (KIC) and Kuwait Finance House (KFH) -- from the Middle East promoting a US$ 200 million fund for investing in India. Called the 'Indian Private Equity Fund', it targets activities with controlled risks in growing sectors like real estate. Close on its heels, California Public Employees’ Retirement System entered India, investing US$ 100 million in a US$ 400-million real estate fund promoted by IL&FS. Ascendas, Asia’s leading business space provider is launching the first property trust of Indian assets worth US$ 500 million in Singapore in July 2007 with the renowned real estate developer Embassy Group.
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