The Waiting Game

Ever since the government liberalised its stance on Foreign Direct Investment (FDI) in the hospitality and realty sector, trade pundits have been predicting a surge in foreign investments. But, though international firms like Warburg Pincus, Dawnay Day, Blackstone Group, Hines, Tishman & Speyer and JP Morgan Partners have been verbal about their desire to usher in their capital funds aimed at the real estate market (key focus on hotels in India), money has not yet touched Indian shores.

Most of them are in talks with leading real estate developers and hotel companies in the country, but no agreement has been signed or is likely to be inked in the near future (at least not for another year) as almost all of them are apprehensive about whether they will get their due return-on-investments (ROIs).

In short, their confidence level in India (though the country’s prospects looks promising) is not so high. And this is primarily because of the volatile economic conditions that the country is subjected to time and again, as also the immortal virus - government bureaucratic restrictions - that never ceases to plague.

What are the powers-that-be doing about this predicament? Opening doors to investment and slamming it right back in their faces when foreign companies show a little interest. And this too is done very uniquely - besides burdening them with a galore of precincts and conditions, every step needs to be crossed using greenbacks.

"Do you think a foreign company entering the real estate or hotel sector will be able to adapt to such an unprofessional set up, especially in the scheming and politically driven Indian realty sector?" expressed a seasoned Indian realtor, on being asked whether he envisages a threat from the advent of foreign real estate companies. "Is a foreign company willing to grease palms at every nook and corner, deal with locals over petty issues of land and property? Of course not! That's why they will always find an Indian arm to do their shoddy work," he further insinuated. That is so true.

The government, especially the tourism ministry, is crying hoarse on the need for foreign collaboration in the development of tourism and hospitality related infrastructure (especially hotels, as it is the need of the hour to service the increase in tourist inflow) but till today the mooted single-clearance window system has not yet seen the light of day. Even the automatic route instituted for FDI is long-drawn process; it's no wonder investments in the hospitality and real estate industry are pitiful - even the paper pulp sector has seen more realisation of FDI inflow.

Will the situation ever change? Eventually, international real estate firms will merge with Indian firms to tide over the unsettling waves in India, like what Tishman & Speyer did with ICICI. Together they have set up a JV to develop real estate in the country (hotels will be on their focus as well).

If one is expecting a change in the unprofessional approach to the way business is done by the government, they will have to play the waiting game. That's exactly what the funding companies with US$ 10 billion-plus in their pockets are doing - waiting and watching…

- Savio Rodrigues <ehc@vsnl.com>