Student Name .................. Number ........................... Submission date.........................

Dissertation Proposal

Critical Analysis of Opportunities and Challenges of Investing in Indian Real Estate & Changing Investment Perception of NRI s

Aim & Objectives

The purpose of this study is to analyze the investment opportunities for both domestic and foreign players in real estate sector in India in the wake of current economic climate and policy framework for Foreign Direct Investment in India specifically in real estate sector and broadly discuss the challenges involved in such investments. The study is intended to reveal if the entry clearance to foreign players is the right step in the long run for the lower income groups or the masses whose affordability is highly affected by the steep rise in real estate prices. The research paper documents the broad contour of accelerating economic growth in India and present the analysis to some emerging obstacles in the realty sector and finally the study on changing consumer perceptions of NRI s in respect to investment in Indian Real Estate. The research paper intends to achieve the following objectives: 1. To explore the complex terrain of the policy framework relating to FDI in Indian real estate. 2. To examine the prospects of real estate sector in India emphasizing on the linkages between the past , present and future trends to follow based on the reports published and studies conducted by various trusted private and government bodies, 3. To analyse the challenges involved in the real estate investments in view of the players and government and some emerging obstacles in the realty sector. 4. To study the changing consumer perceptions of NRI s (Non Resident Indians) in respect to investment in Indian Real Estate as they contribute significantly through funds remitted from abroad to India.

Research Motivation One of the primary reasons for choosing this topic is to study the robust growth in the real estate market in my home country and specifically the capital city, Delhi and also to understand the factors behind such growth and changes undertaking as a result of fast economic growth. For Indians, land has been the investment for last several generations which is passing hands and act as a symbol of wealth that an individual possesses. Taking into consideration, the growing investment opportunity in the reality sector I am motivated to explain the changing dynamics in the sector despite several challenges mainly the political policy and delivery mechanisms which has tarnished reputation and succumbed to several scandals like the recent Adarsh land scam involving several bureaucrats, army personals and politicians.

Literature Review
Overview In a country with over a billion population, the challenge of providing shelter, the basic need of mankind has been a matter of serious concern for the governments of various times. State intervention has been of utmost importance for over four decades since independence to meet the challenge of providing adequate housing to the socially and economically backward sections of society. The first strategic step towards the issue was the formulation of five year plans which was a concrete initiative by the government with the focus of providing shelter and introduction of plans for housing both in rural and urban regions of the nation (Joshi, 2006). Indian economy s clocking growth rate is based on growing exports and sustained growth in services and manufacturing sector, this sustainable growth is evident by the facts and figures which underpin the unprecedented rise in the fixed investments to GDP ratio. The increased liquidity in the economy accompanied by lower interest rates has boosted the demand for housing. The figures of the growth rate of Indian economy before the economic meltdown justified the fact of how Indian economy was too an extent recession proof and emerged out strongly registering positive growth rates than the developed counterparts. In a span of four years ending 2006-2007, India s GDP grew at a rate of 8.7% that is comprised of 8.8% annual rate of growth in the manufacturing sector consecutively for 5 years between 200202003 and 2006-2007 accompanied by impressive growth rate of 9% registered by services sector since 2001-2002. (Nagaraj, 2008) The impact of the financial market collapse on the securities market around the globe was like a chain reaction grabbing the national economies in its vicious circle. The research by Zaman clearly interprets and helps to understand the impact of the meltdown on several developed and emerging countries with special reference to India which worked better in battling global recession and emerged stronger, this is proven by further statistics. The data on the percentage decline in the indices between Jan, 2009 and June, 2009. Between these 6 months, RTSI Russia, BSE Sensex of India made up their losses in the indices followed by China. This clearly indicates the recovery efforts and financial cushion of these emerging economies. (Zaman, 2009) Policy Framework for FDI in India FDI has been seen as a dominant factor behind achieving high economic growth as it brings in the scarce capital resource, raise technological capability and increase efficiency through enhancing competition . (Singh, 2007) The paper documents the trends in FDI in India in 1990 s; the study raises some issues on the effects of recent investment in domestic economy. Until 1991, India followed a restrictive policy in regards to foreign private investment with increased reliance on multilateral loans with long maturities. It was the 1991 economic reforms initiated by the current serving Prime Minister Dr. Manmohan Singh who allowed FDI in the economy. FERA (Foreign exchange regulation Act) 1974 laid down the entry barriers and conditions under which the foreign companies can invest in Indian markets. It stipulated foreign corporations to have maximum equity holding up to 40%. (Nagaraj, 2003)

The green signal to FDI in the real estate sector in 2005 by the government has fuelled the growth and prices of the real estate properties in India. The cabinet committee of economic affairs permitted 100% FDI in housing, hotels, resorts, educational institutions, hospitals and other real estate infrastructure that has attracted numerous foreign investors to the potential Indian market. (Singh and Komal, 2009) Chinese Experience of achieving high growth through FDI has been cited as worth emulating policy lesson for Indian economy. SEZ s is an initiative of the government to establish special export promoting industrial areas with superior infrastructure and tax incentives for the firms setting up their operations in such regions. The idea of this setup is to grow the nation s manufacturing prowess and fast growing services sector. The higher trends of real estate prices are just not leveraged by the local investors and global players but also the major chunk of foreign currency being remitted by the NRIs, this is mainly because of the combined factor of losing faith in the real estate investment in developed countries and promising growth and safer returns in India. (http://www.realestatehyderabad.com/real-estatehyderabad/contribution-of-nris-to-the-real-estate-boom.html) As per the data available for the year 2008, RBI announced the NRI repatriation to India crossing $39 billion in the first nine months. This is a staggering figure if we relate it to the nation s GDP and accounts for more than 5% of GDP of India. According to the analysts, this trend is expected to grow in the coming years because of the fact the depreciating value of the rupee against other foreign currencies and the most attractive factor is the high interest ret urns has been allowed to FCR account. (http://www.thomex.com/article/resources_details.aspx?ID=R_2007060414180&catid=C_20090310142 1&flag=1) Challenges Political economy of India in the midst of staggering economic growth is the matter of abiding interest. Over the decades, the policy formulation framework of the nation is often dictated by political usefulness i.e. in tune with the ideology of the political party in power and its supporting parties. Thus political economy of policy formulation is one of the major challenges in the sustained growth in the real estate sector. (Jha) Real estate sector is the most targeted and prone to money laundering for years. Although technologies and innovation in the banking sector has fuelled the growth and tracking of funds, but still the efforts to trace the movement of illegal and suspected money and identifying actual ownership of the suspected assets is an extremely difficult and time consuming task that needs approvals of several investigative agencies and enforcement bodies. According to the recent estimates, globally money laundering accounts to over US $ 2 trillion annually which is about 6-8% of world GDP. (J.D Agarwal and A. Agarwal, 2007)

Methodology
The present study is of exploratory in nature, thus the researcher is relying mainly on the secondary sources of information mainly collected through various magazines, journals, articles by renowned scholars and internet. To supplement the secondary data and collect first hand information about NRI s view on real estate investment in India, primary data has been collected through interviews to make informed opinions of the market players. The factors being dealt in this research paper are mainly macro economic variables for which secondary data is more relevant and adoption of qualitative research. Denzin and Lincoln defined qualitative research is a situated activity that locates the observer in the world. It consists of a set of interpretive, material practices that makes the world visible (quoted in Ritchie and Lewis, 2003, p.2). This study primarily adopts the interpretivist research philosophy over positivist philosophy. Positivist philosophy is more objective in approach that proceeds with predefined set of hypotheses to be tested and assumes that the researcher is clear of what he is looking for (Van-Meel, 2000). However, this research is more explanatory in nature which needs the reality to be analyzed in light of complex social situations and does not involve any hypothesis testing thereby making it difficult to apply positivist philosophy. Thus the research has adopted the approach of interpretive research philosophy that relies more on the researcher s subjective interpretations and understanding of the phenomenon that have to be studied (Van-Meel, 2000, p.16). Research Instrument To collect the first hand information of the respondents Interview has been selected as the research instrument. Qualitative interviewing allows the respondents being studied to give valuable insights to questions put to them by researcher. It not just provides valuable information to certain areas of research but also complements quantitative research methods by providing the rationale behind the numbers. The subjects relating to the views and practices that NRI s adopts in remitting funds can be studied in detail if we engage in a discussion and get a chance to probe on the subject matter. For Instance - Questions for Non Resident Indians in UK Q1. Where do you prefer to invest your Savings? (Current country of residence or Home Country - India) Q2. In India, which sector would you find safer for Investments? (Bank Deposits, Real estate or Securities market) Q3. What is your prime concern in making Investments in India? (Safety or Higher returns) Q4. At present the real estate in India is yielding greater returns than elsewhere, would you make investments in properties? (If yes then in residential sector or commercial) Q5. Are you aware of the new policies for NRI s in terms of Investment?

Q6. What sources do you approach for information while making investments? (Local property dealers or Govt bodies) Q7. How do you sent money to your home country? (Bank transfer or through informal routes) One of the major benefits of this method is that the result produced on transcribing the data is verifiable and produces large amount of factual and comparative information which could further be used for analysis and comparing it with other works on the same subject. Furthermore, Qualitative interviewing provides flexibility to the researcher to vary the order of questions and to effectively probe interviewees replies. At the same time it do not force pre set replies on respondents like in the case of closed ended questionnaire thereby giving an opportunity to say what they want. One of the major limitations of interviews is the predetermined notions that dominate the researcher s thoughts and influences his analysis while transcribing the data. In qualitative interviewing there is a large amount of variation in the time that interviews take thereby lacking in standardization and consequently the respondents may not respond much on those aspects of the topic that interest the researcher. Challenge in Data Collection Considering the money laundering as the covert area in the trade and commerce, it has been difficult to collect specific information on the illegal funds being directed towards real estate sector and what companies in India are involved in the practice.

Discussion
After two decades of economic reforms and liberalization of economy, Indian economy is at crossroads. The economic reforms introduced have supplemented the desired economic growth and yielded considerable returns. However some stubborn challenges have raised questions on such growth that have led to increasing spatial inequalities that needs to be addressed to convert the terms growth into development . The research paper would likely give an informed study on the prospects and issues in Indian real estate and make recommendations to address to such issues.

References
Joshi, H (2006) Identifying Asset Price Bubbles in the Housing Market in India Preliminary Evidence, Reserve Bank of India Occasional Papers, Vol. 27, No. 1 and 2, Summer and Monsoon 2006 Nagaraj, R (2008) Indias Recent Economic Growth: A Closer Look, Economic and Political Weekly, Vol. 43, No. 15, April 12, 2008, pp 55-61 Zaman M.R (2009) The Causes and Ramifications of the 2008-2009 Meltdown of the Financial Markets on the Global Economy, Journal of Business and Economics 2009, 2 (4), 63-76 Singh, L (2007) - http://mpra.ub.uni-muenchen.de/6427/1/MPRA_paper_6427.pdf Nagaraj, R (2003) Direct Investment in India in the 1990s Trends and Issues, and Political Weekly, Vol. 38, No. 17 (Apr. 26 - May 2, 2003), pp. 1701-1712 Singh, V and Komal (2009) Prospects & Problems of Real Estate in India, International Research Journal of Finance and Economics ISSN 1450-2887 Issue 24 (2009) EuroJournals Publishing Inc. http://www.realestatehyderabad.com/real-estate-hyderabad/contribution-of-nris-to-the-real-estateboom.html (http://www.thomex.com/article/resources_details.aspx?ID=R_2007060414180&catid=C_200903101421 &flag=1 Jha - http://dspace.anu.edu.au/bitstream/1885/42131/1/2004_12.pdf Agarwal, J.D. and Aman Agarwal (2007) Money Laundering : The Real Estate Bubble http://www.mse.ac.in/seminar/20070629-MLREB%20(AFFI%20%20BSE).pdf Ritchie, J & Lewis, J (2003) Qualitative Research Practice A guide for social science students and researchers, Sage publications Ltd. Van-Meel, J. (2000) The European Office: Office Design and national context, 010 Uitgeverij.