BNP Paribas Real Estate and Infrastructure Advisory Services Pvt. Ltd, a subsidiary of the BNP Paribas Group, a well-known European firm in the banking and financial services that entered the Indian market in 2008, plans to establish itself as a leading services and consultancy firm in the real estate market. Raja Kaushal, managing director of the Group’s real estate arm, talks to Mint Money about the impediments before the real estate sector and the possible near-term effects of the current economic scenario in terms of depreciating rupee and loss of interest by foreign investors in real estate deals due to delays and regulatory hurdles.
In which domains does BNP Paribas Real Estate plan to diversify in India?
We are new in the emerging Indian real estate market. We are currently into valuations, consulting and transactions in the India market, which are all fee-based services. We haven’t brought our entire gamut of services as we are still focusing on building and developing relationships.
Raja Kaushal, managing director, BNP Paribas Real Estate and Infrastructure Advisory Services Pvt. Ltd.
Is BNP Paribas Real Estate looking at development of real estate in India like it takes up projects in the European market?
No, we don’t have development plans yet. India is still an emerging market. This is despite several listed firms, segregation of the market into tier I, tier II and tier III cities and differentiation of services and offerings such as affordable, mid segment and premium luxury.
Why do you think the real estate market in India is still emerging?
I say this because the Indian market still has problems of rules and regulations. Moreover, real estate funds that came to the Indian market in 2006-07 have not been able to give enough returns yet. We are yet to see some successful exits. Also, we are yet to see the entry of some of the very large Europe-based funds.
So what problems do foreign funds have in exiting?
There are very few cities that have seen infrastructure development preceding real estate development. Developers take their own sweet time to construct. There are no strict rules on financial disclosures being made by real estate firms. Thus, there have not been enough big funds in the Indian market yet.
How is the commercial market in India doing? What is the rental trend in commercial real estate?
The BFSI (banking, financial services and insurance) segment, which is the largest occupier of leasable space in India, is witnessing a slowdown. Firms have adopted a cautious approach expanding to new areas and suburbs. In additions, prices and rentals in the commercial segment are higher than that in the US, Vietnam and the Philippines.
Cities such as Bangalore and Mumbai are costlier than some other prime markets in the world. However, prices are at their peak and there is stagnancy in rates. At this stage, leasing rates have to go down. In terms of capital values too, rates should go down. A bubble is being created through the maze of speculative pricing.
What do you think about the residential segment?
These are scary times to invest. Prices are high in the most popular mid-income segment. On the contrary it is a good time to sell. My suggestions to buyers: buy plots instead of apartments. In the apartment space, buying a ready-to-move-in apartment over the under-construction project makes sense as you save on the rental cost.
The government has approved the Sebi (Alternative Investment Funds) Regulations, 2012 for foreign funds. This would replace the earlier Sebi (Venture Capital Funds) Regulations, 1996. The new regulation restricts the size of investment to a minimum of Rs 1 crore from an investor. What would be the impact of this new regulation?
Though the government is trying to protect retail investors from the perils of the real estate market, the regulation would make fund raising difficult for those developers who depend on small investors. This regulation will restrict the flow of domestic funds from retail investors. I think there is need for more capital in the market and retail investors form an important group.
The value of the rupee is depreciating in the international markets. Is there any impact on the sentiments of foreign investors and non-resident Indians looking at the Indian market?
There is renewed interest among investors from the UK and West Asian countries. They are mostly looking at investments in the hospitality industry, where there are regular returns. However, their approach is cautious. They are still not looking at investing into land deals, developer’s projects, where they see impediments in the form of delay due to regulatory hurdles and late sanctions and problems with land acquisition. They are looking for secure investment asset classes.