The government's decision to allow 51% foreign direct investment in multi-brand retail and increase FDI limit in single-brand retail to 100% comes as a whiff of fresh air for the real estate sector, which has been battling slow sales and rising debt for almost two years now.
The cabinet's decision on Thursday may not make a big impact in the short-term, but it is expected to prompt real estate players who had either shelved or slowed down their plans to build malls and shopping complexes over the past few years, to revive their plans. Rajeev Talwar, executive director of India’s biggest real estate player, DLF, which has huge interests in retail, said, "We are moving ahead with our retail plans in strategic locations. You can expect a huge demand and supply of quality real estate over the next two years from a number of developers."
Real estate analysts point to the fact that there isn't enough quality real estate in the country today, especially in the smaller towns. "But if demand goes up, it will give confidence to real estate developers to make big investments," said Anshuman Magazine, managing director of CB Richard Ellis, an international property consultancy.
With the likes of Carrefour, Walmart and Tesco, among others, likely to enter the retail business in India once they are finally allowed, the . 22,000-crore retail real estate market is expected to grow at a CAGR of 25% a year for the next five years, growing at 50-100% after the second year, consultant Jones Lang LaSalle India said in a recent report. Sanjay Dutt, chief executive officer, business, at Jones Lang LaSalle India, recently told ET, "Today, there are only a handful of Indian corporates who have gone into retail and only with a few formats. We need a more competitive environment. With this, muchneeded capital too will come into the country for retail which will mean job creation, investments by organised players, and very importantly training."
This will be a big opportunity for developers like Unitech, DLF and Oberoi to re-evaluate their retail plans. With the opening up of new categories of stores, developers will be able to fill up spaces and the pricing dynamics should get better.
For instance, Unitech has recently announced a revamped retail strategy. It will spend about Rs 2,000 crore to develop eight malls, which are under construction at the moment and another four are being planned. An executive said that the move to open up FDI in multi-brand retailers would give developers more options to choose from, especially when looking for large anchor tenants.
"This could mean new retail spaces will be launched but if they are over priced, it will pose problems for the sector as a whole. Some of the bigger retail players might then want to get into retail real estate development to build their own malls. They could then look at smaller cities also for developments," added Pinaki Ranjan Mishra, partner (retail & consumer practice) at Ernst & Young.