Foreign realty cheers FDI in broking services : The move to introduce foreign direct investment (FDI) without government approval is expected to improve delivery of broking services, suited to a particular standard.
The Union government, in early January 2018, amended rules relating to 100% FDI (foreign direct investment) in construction development in India under the automatic route, without the need for government approval. The decision was taken at a Cabinet meeting, chaired by Prime Minister Narendra Modi in New Delhi, according to an official statement. The amendments include addition of real estate broking services under the construction sector and development of townships, etc. Essentially, it differentiates real estate broking services and eases norms for direct investment in them. Read On...
Combined with the introduction and enforcement of the Real Estate Regulation and Development Act (RERA), real estate broking is expected to now become more organised. Industry executives and observers hailed the move, saying this would facilitate the flow of foreign capital. Foreign companies that were cautiously eyeing this space, are also more upbeat about broking services now, such as UK-headquartered estate service provider Savills. Bhavin Thakker, country manager, tenant representation, Savills India, said this is a welcome move. He said, “This will help real estate consulting firms and other consulting firms to bring pure-play brokerage as a service line in India. It will help the estate industry move towards a more mature and structured environment.”
Unofficial estimates peg the number of brokers at about 2,00,000 across the top 10 cities of the country. It is a large market with the commissions earned by them estimated to be in a range around Rs 14,000-16,000 crore a year. They operate in all segments of the property market, cutting across new projects, resale, rentals, commercial, paying guests, plots, etc. Thus far, there has been no registration or special qualifications needed for anyone to become a broker, so it was common to see new brokers springing up; while a large number of brokers in the market are first-generation entrepreneurs, there is a sizeable chunk of brokers who have been in business for several decades. And while the market size and scale of the real estate broking business in India is huge, it is also very dis-organised and fragmented. Mrinal Kumar, partner, Shardul Amarchand Mangaldas & Co, pointed out that in such a situation, the credibility of the broker is also always in question. He said, This move by the government to clarify that real estate brokerage services are not real estate business and allow 100% FDI will give them a boost. It will enable international broking companies to invest in Indian companies offering real estate broking services and also set up their own subsidiaries here. Not only is this a move towards further liberalising the economy, but it will push the growth of the real estate sector and provide better services suited to a particular standard.”
Ramesh Nair, CEO and country head, JLL India agrees the move will help create an institutional framework for real estate services. He said, “Establishing and growing large real estate services firms will become more feasible, making it easier to raise capital for such services. The decision adds significance to real estate broking and consultancy business and prophesies the government’s determination to advance the same into an exceedingly organised, structured and transparent market.”
According to Neeraj Bansal, partner and head - real estate sector, ASEAN region, at KPMG, after the enactment of the RERA in 2016 - which requires an agent to register and comply with the provisions enacted by the regulator – the sector may witness the exit of more than 50% of a million consultants in major Indian cities in the near future, thus sieving out the small-time players and consolidating the major ones. Bansal said, “The vacuum created in the sales channel of developers due to large number of exits offers significant growth potential to organised property consultant firms. Relaxed FDI norms may result in an influx of global property consultants supporting the sector’s need for growth capital and digital revolution.”
Some others see the move also as one that will help bridge a supply gap and even drive investments deeper into the country. Ghulam Zia, executive director, Knight Frank, said there are many foreign investors such as UK's CDC and multilateral agencies such as the IFC who have a mandate to deploy capital beyond the urban centres. He said, “So far, we have mostly seen extremely opportunistic, risk-free strategies where funds have bought properties that were already rented out completely. With this step today, I expect foreign capital will find its way into the rustic environs of the hinterland and tier II and tier III cities also.”
- TradeBriefs Bureau -
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