Retail FDI could spur sales and demand of flagging realty

Industry doyens have termed it a "win-win" for the retail sector and hailed it as a policy that will help the sector grow, bringing much needed capital in the area. But, guess who else is smiling?

No, it’s not yet the customers - but instead, the realty sector.

The real estate sector, which has been seeing slow sales and increasing debt, is hopeful that the new policy will give a fillip to its flagging stocks.

The market on Friday saw real estate stocks chase the bourses following the announcement by the government to permit 51 percent FDI in multi-brand retail and 100 percent in single brand.

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[caption id=“attachment_140558” align=“alignleft” width=“380” caption=“Many real estate players in the past couple of years had either shelved or postponed their plans to build more projects, due to low demand-supply dynamics.Reuters”]  [/caption]

DLF closed up 3.24 percent at 203.95 and Oberoi Realty was up 2.04 percent closing at 220. BSE’s Realty Index shot up to 1620 just before noon and closed 1.32 percent higher than its previous close of 1,558.74 at 1,579.30 - in a market where other sectors barely managed to stay in the positive, even as the Sensex fell 1.03 percent to 15,695.43.

The cabinet’s decision may not yet be law, but that did not dampen the spirit of real estate experts, who are hopeful that the increase in demand on space from foreign retailers like Wal-Mart, Carrefour and Tesco will revive their stagnating industry.

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Many real estate players in the past couple of years had either shelved their plans to build more shopping complexes and malls or postponed them - due to low demand-supply dynamics, high construction and materials costs, and also pricing dynamics that affect the buyer.

With the government opening up the retail sector to more FDI, real estate promoters are expecting an increase in demand and a boost in sales and space rentals.

The Economic Times has reported that Unitech has recently announced a revamped retail strategy and said it will spend Rs Rs 2,000 crore to develop eight malls under construction and another four that are being planned.

Executive director of DLF, India’s biggest real estate player, Rajeev Talwar, told the Economic Times, “We are moving ahead with ourretail 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.”

Pradumna Kanodia, finance director of Phoenix Mills, told CNBC-TV18 that he expects to see a 25-30% increase in rental charges with the opening up of the retail sector to foreign players.

“Impact of the increase in rental will be seen in FY12,” Kanodia said, adding, “As new brands and new investments come in, the demand for quality retail space will be increasing and we anticipate at least 25-30 percent increase in rentals going forward.”

Phoenix Mills has more than five million square feet of mall space being operationalised - with malls in Bangalore, Kurla and Pune. The company has also tied up with its peers who are offering the same service in tier-II towns in the country.

According to a recent report by Jones Lang LaSalle India, the retail real estate market - pegged to be worth Rs 22,000-crore - is expected to grow at a compound annual growth rate (CAGR) of 25 percent each year over the next five years.