~By Charmaine Mirza
Chinese investment in India’s real estate sector increased six-fold in 2015, topping out at approx. US$870 million. The door is still wide open. The Indian government’s decision to allow 100 percent Foreign Direct Investment into the real estate sector has lead to a spike in interest from Chinese investors.
Haryana has certainly jumped on the bandwagon. Dalian Wanda’s MoU with the Haryana State government to develop the Wanda Industrial New City that spreads over 100 kilometers, has flagged off a trickle of investment from China into India that could turn into a steady stream.
China Fortune Land Development is also sizing up large-scale industrial park projects in Haryana, while Gezhouba, another real estate player from the mainland, is eyeing an investment in Telengana. Not to be left far behind, Madhya Pradesh is also seeking Chinese help to develop large scale industrial projects, while in the private sector, financing major China Fosun International, is considering investing in Locon Solutions, the owner of housing finance start up, Housing.com.
So why is there such a sudden gold rush from China into India’s real estate segment?
Real estate worldwide has been seen as a safe way of diversifying one’s investment portfolio in China. As the real estate bubbles in China have burst, more and more wealthy Chinese are looking overseas to markets such as the USA, Europe, UK, Canada and Australia to park their funds.
According to Cyrus Mody, an independent consultant in the real estate space in Mumbai, “There is a huge flight of capital from Chinese companies to other economies as their domestic economy has started slowing down…Chinese real estate firms have bought up a huge amount of international property in places like Chelsea (London) and Brooklyn, and with those properties now not returning grand enough yields due to a world wide slowdown (except India), India seems like the only logical bet at the moment.”
The government’s Make In India campaign has gone all out to cash in on FDI from China in the real estate and infrastructure development segments. Sany Heavy Industry Co. which manufacturers heavy machinery for the construction industry says that it aims to invest close to US$1 billion over the next ten years in India.
According to Nomura, there are many reasons why India is viewed as a lucrative investment option. India’s burgeoning middle class segment will drive growth over the next few years and the real estate sector is all set to ride this wave.
There is strong propensity for further growth in India’s metros as compared to the rest of Asia, in both the commercial and residential rental space. Along with these, is a need for high quality urban infrastructural facilities such as hospitals and schools.
India also has the propensity for further growth in the travel and tourism arena, both domestic and inbound, which could mean future growth in the hospitality sector. Hospitality companies like Lemon Tree have already attracted the interest of Chinese investors.
But there are still some gaps in terms of government relations, trust, business culture and understanding which make both the Indians and Chinese a little wary of working with one another. Both governments are exceptionally apprehensive of outright selling or leasing land on a long term basis as future relations between the sweet and sour neighbours are fickle.
In the medium term, Indian developers are keen to cash in on investment from abroad although the market sentiment is that Chinese investors are difficult to work with. Despite these pitfalls, seasoned Chinese investors are willing to risk a little pain for gain, in a sector that is projected to grow at a Compound Annual Growth Rate (CAGR) of 11.2 per cent. It remains to be seen whether all these deals materialize, and whether China could be the one to breathe new life into Indian real estate and infrastructure.