Indian realty developers are heading overseas as escalating costs and dwindling buyer interest are making it difficult for them to grow profitably in the domestic market.
While the return on investment in India ranges at 15-17 per cent, markets such as Bahrain, Dubai and Sri Lanka offer over 22 per cent, making them more attractive investment destinations.
Advantages abroad
As a result, top rung developers such as Sobha, Ajmera Realty, Lodha and Puravankara are taking up projects abroad to maximise returns.
“Profitability depends on the quantum of capital deployed. If the input cost is low because of the availability of land, faster approvals and low regulation fees, then margins are better. Currently, due to lower land acquisition costs, the return on investment (RoI) is very encouraging in Sri Lanka,” Ashish R Puravankara, Managing Director, Puravankara, told BusinessLine .
His company is undertaking a project at Ja-Ela, close to the Colombo Katunayake expressway, and also evaluating other viable options.
Dhaval Ajmera, Director, Ajmera Realty, said the RoI in India cannot be accurately predicted because if the developer does not get the approvals on time, costs go up.
“Even after a lot of improvement, the clearance processes still takes a lot of time in India. There’s need for a single-window clearance system. If the approvals are achieved, a project can be completed in six months. But with each project surfaces a different set of issues and if you are stuck then you are stuck,” he said.
His firm’s foray into Bahrain is part of a diversification strategy to expand through joint developments while lowering risks. “We are also evaluating other international opportunities and will announce them at a later date,” he said.
Buyers follow suit
From a buyer’s point of view, too, some overseas markets are more attractive. In recent years, the trend of Indians investing in Dubai has surged following the sharp spike in property prices in India.
“Almost 25 per cent of real estate investments in Dubai are by Indians. Investors get tax-free returns, and can enjoy 20-30 per cent capital appreciation. The process of registering a property in Dubai is also easier than in India,” said PNC Menon, Chairman, Sobha Group.
Moreover, post-demonetisation, Indians looking to invest in a second home seem to have limited options of getting higher returns in India. “Returns are also stable (in Dubai) as the currency is pegged to the dollar and unaffected by currency fluctuations,” he added. Sobha is interested in London, the US and South-East Asian markets, especially the Indonesian capital Jakarta. “There are no plans for expansion outside GCC at the moment, but we are in talks with the government of Oman for a possible project,” Menon said.
Initial hiccups
According to Puravankara, while venturing abroad, the start-up time for the first project is longer as the developer has to adjust to the laws and compliances, and understands the socio-economic culture. “Barring the initial hiccups, the potential benefits of the business outdo these strain points,” he said.
And that’s precisely why Puravankara, like others that have tested the overseas market, is ready to venture out. “As developers, if there is a viable opportunity where we can bring in our construction and sales expertise, we will consider it,” he added.