The Housing Sector is, by far, the most important sector for FDI.

By Ubaid Parkar

Foreign Direct Investment (FDI) is a vital tool for the growth of the country. Ever since the economy was opened to foreign investment in 1991 by the then Finance Minister and current Prime Minister Manmohan Singh (this piece was written before the results of the recent general elections), India has acquired avenues to sources of investment from abroad. The cumulative FDI equity inflow since August of 1991 till January of 2009 has been well in excess of Rs.4 lakh crores with almost a quarter of
it coming in the period of 2008-09. The third quarter of 2008 saw the least amount of inflow with November and December’s
cumulative inflow close to a third less than the inflow in May 2008 alone and half of what was acquired in February 2008, a
time when the global recession was in full swing and terrorism in India ruled the roost. However, things are looking up in
2009, wherein the revision of the FDI definition has garnered an influx of investments. So far in 2009 the Gross inward FDI  as US$ 31.7 billion channelled mainly into manufacturing.
Mauritius has been the top investor with a whopping 43% of the inflow, as it provides a tax haven through which investments
can be channeled by other countries, whereas Singapore, U.S.A and U.K combined accumulate 23% of the same. With continuing liberalization measures India is reflecting as an attraction as an investment destination.
The Services and the Computer sector hog up a third of the investments. Housing and Real Estate (including Cineplex, Multiplex, Integrated Townships and Commercial Complexes, etc.) has a percentage of 6 and so does Construction Activities which are the 4th and 5th highest attracters of such investments.
Interesting to note that Housing and Real Estate since 2005-06 has seen a massive, earthmoving 62 fold increase in investments by 2008-09 (a 6000 plus per cent increase), which is the highest when compared to any other sector and Construction Activities has seen an increase of almost 12 times. The closest figure is with Petroleum and Natural Gas which has had an increment of 18 times (a paltry 1100 plus per cent increase) over the same period. This clearly goes to show the need of the hour, a minute by minute dissection of the demand-supply offing. It won’t be surprising to see the Housing Sector to go a notch up the cumulative data sheets over the next decade.
The State of Maharshtra alone has acquired a nit more than 35% in the better part of the decade with Delhi NCR with a distant second of odd-15%. The economic capital of the country of course needs the most of it.
It is easy then to quantify the imperativeness of the Housing Sector, a neglected industry to the point of not having attained the vital industry status it so desperately needs. Other Sectors which have an alliance with Housing including Construction, Power, Metallurgical Industries, Chemicals (other than fertilizers), Cement and Gypsum Products, Electrical Equipments, Miscellaneous Mechanical & Engineering Industries, Ceramics; the list can just go on. These allied industries form up to 25% of the total investments. Of course not all of the investments are reserved for the Housing Sector alone but it invariably is an integral part of it. With the rate at which the Housing Sector is covering ground it has a huge risk of running aground as it is highly unregulated, it is a volcanic island of chaos in the middle of a calm and destitute ocean just waiting to erupt.

Foreign Direct Investment (FDI) is a vital tool for the growth of the country. Ever since the economy was opened to foreign investment in 1991 by the then Finance Minister and current Prime Minister Manmohan Singh (this piece was written before the results of the recent general elections), India has acquired avenues to sources of investment from abroad. The cumulative FDI equity inflow since August of 1991 till January of 2009 has been well in excess of Rs.4 lakh crores with almost a quarter of it coming in the period of 2008-09. The third quarter of 2008 saw the least amount of inflow with November and December’s cumulative inflow close to a third less than the inflow in May 2008 alone and half of what was acquired in February 2008, a time when the global recession was in full swing and terrorism in India ruled the roost. However, things are looking up in 2009, wherein the revision of the FDI definition has garnered an influx of investments. So far in 2009 the Gross inward FDI  as US$ 31.7 billion channelled mainly into manufacturing.

Mauritius has been the top investor with a whopping 43% of the inflow, as it provides a tax haven through which investments can be channeled by other countries, whereas Singapore, U.S.A and U.K combined accumulate 23% of the same. With continuing liberalization measures India is reflecting as an attraction as an investment destination.

The Services and the Computer sector hog up a third of the investments. Housing and Real Estate (including Cineplex, Multiplex, Integrated Townships and Commercial Complexes, etc.) has a percentage of 6 and so does Construction Activities which are the 4th and 5th highest attracters of such investments.

Interesting to note that Housing and Real Estate since 2005-06 has seen a massive, earthmoving 62 fold increase in investments by 2008-09 (a 6000 plus per cent increase), which is the highest when compared to any other sector and Construction Activities has seen an increase of almost 12 times. The closest figure is with Petroleum and Natural Gas which has had an increment of 18 times (a paltry 1100 plus per cent increase) over the same period. This clearly goes to show the need of the hour, a minute by minute dissection of the demand-supply offing. It won’t be surprising to see the Housing Sector to go a notch up the cumulative data sheets over the next decade.

The State of Maharshtra alone has acquired a nit more than 35% in the better part of the decade with Delhi NCR with a distant second of odd-15%. The economic capital of the country of course needs the most of it.

It is easy then to quantify the imperativeness of the Housing Sector, a neglected industry to the point of not having attained the vital industry status it so desperately needs. Other Sectors which have an alliance with Housing including Construction, Power, Metallurgical Industries, Chemicals (other than fertilizers), Cement and Gypsum Products, Electrical Equipments, Miscellaneous Mechanical & Engineering Industries, Ceramics; the list can just go on. These allied industries form up to 25% of the total investments. Of course not all of the investments are reserved for the Housing Sector alone but it invariably is an integral part of it. With the rate at which the Housing Sector is covering ground it has a huge risk of running aground as it is highly unregulated, it is a volcanic island of chaos in the middle of a calm and destitute ocean just waiting to erupt.

Some Facts:

  1. Almost 80 % of real estate developed in India is residential space.
  2. For every Indian rupee invested in the construction of houses in India, INR 0.78 is added to the gross domestic product.
  3. The real estate sector is also subservient to the development of over 250 other ancillary industries.
  4. A study by a rating agency ICRA shows that the construction industry ranks 3rd among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.
  5. After agriculture, the real estate sector is the second largest employment generator in India. The Real Estate sector is the fastest growing sector in India.




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