The Indian government’s recent decision to allow foreign direct investment (FDI) up to 51% in multi-brand retail has been received with much optimism and some apprehension by the country’s real estate sector. Before we can analyse the potential impact of FDI in multi-brand retail, it is important to reflect on some of the important features of the policy.
The news of FDI in multi-brand retail brought smiles to developers of mall spaces all over the country. According to most of the developers, the new policy will have a two-fold impact on the Indian real estate sector: (1) it will increase demand for anchor space in cities with a population of 1 million-plus where the state governments agree to permit foreign retailers; and (2) rental price expectations will rise as not much quality space suitable for big-box retail would be available.
Room to grow
In India, per capita mall space in the seven largest cities is estimated at less than a square foot, with US and European averages being 20-40 times that of India. Steady GDP growth and a young population with more disposable income could attract investment for mall development in India. The comparatively low square footage and the steady increase in rental prices due to shortage of available quality retail space could trigger new projects.
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Utkarsh Tewari is a partner at Mine & Young, where Akanksha Singh is an associate.
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