FDI IN RETAIL Is really beneficial to Real Estate Sector?

by Mr. Sethuraman Sathappan

Mumbai

An Article from Building & Construction

 What is now allowed?

The central government last year (2012) has decided to allow 51% FDI (foreign direct investment) in Multi Brand Retail and 100% in Single Brand Retail.

Single Brand Retail..!

In this segment already many stores are in operations and the latest company evinced

interest is global giant IKEA who are going to invest about Rs. 9,000 to Rs. 10,000 crores in the coming years in India.

These kind of investments by any global brands may require huge space requirements in the coming years.

Multi Brand Retail..!

The decision to allow 51% in FDI in multi brand retail will open a window of opportunities for retail giants such as Wal-Mart, Metro, Tesco and others to open their stores in several Indian

cities.

Higher population, higher consumption is the main reason for interest of global retailers in having pie out of the proposed move of government. They are charting their plans and entry may be in the next 12 to 18 months

Opposition..!

Though there was much opposition for international players entry into India as most

of the kirana shop owners and small retailers here in India are still feeling that the same

will spoil their businesses and virtually push them out of business. However, the move

was welcomed by the retail and the real estate sectors as they are the major beneficiaries of this move. Both these sectors were undergoing a tough period and expecting this news for long.

What is in store for Real Estate Sector?

The mall culture in India was started in the last 10 years and real estate sector was quick

to capitalize the same with huge malls at all major centres to cater to the needs of many

format stores. However, huge inventory of space created in a short span of time and global issues since the year 2008 has huge inventory of vacant spaces started piling up.

The real estate sector in India is passing a bad phase with unsold inventories,

mounting interest burden, increasing prices of steel, cement, labour costs etc., The recent decision of the government to allow foreign direct investment (FDI) in the multi-brand retail sector will also help the real estate sector in the country. This will also increase the demand for commercial space in the market.

Whether the demand is immediate?

The investments may not come immediately. It may take about 18 months to 24 months.

Before investing in India certainly the big companies will study in depth and then only invest. It may be in three phases. In Phase One, it may be a pilot. International retailers will partner with local chains and establish a few stores to showcase their brand in India.

This will help to assess demand, test merchandizing strategies and set up operational

capabilities. In the second phase, firms expand their demand footprint, they open more stores and increase both the scale of operations and scope of products that they feature. There is considerable investment in this phase in the form of real estate acquisition, putting in operational infrastructure, establishing sourcing relationships, establishing supply chains and massive logistics capabilities.

In the third phase, the investment keeps pace with the rate of expansion. From the

above it is very clear that in the second phase only the demand for real estate picks up.

Sethuraman Sathappan

Commercial vs Residential

If there is a upcoming commercial space used by giant retailers, then it is quite natural that they will employ thousands of people and residential space requirement also goes up in the vicinity. Atleast 50 percent of the people employed there will like to stay closer to the area where they are working.

For the real estate sector it is a slow down since 2008 and still it is not picking up. From a retail real estate point of view, it will be open up immense opportunities in the medium and long term as the demand for quality real estate will rise.

Other Impacts

The arrival of foreign retail chains may have two fold impacts in the real estate sector.

First, for those companies entering India will require space for their chains and warehouses. At the same time, their existing competitors in India have to

equip themselves to compete with them with the required additional spaces as well as

warehouse facilities.

Hence, it will be a double opportunity for the real estate sector.

Where all retail stores will be opened?

It is currently allowed to open a store where the population is more than

10,00,000 and it is the discretion of the states concerned to allow foreign

companies to set up stores or not. Currently there are 46 cities with a population of

above 10,00,000 or more and in which many states have not permitted FDI in Retail and hence many cities will get knocked off. It is estimated that the giant retail stores of foreign companies will come in initially in Congress ruling states where there is no opposition. Places like Noida and the Greater Noida Expressway as Delhi may be the first state to go for multi-brand retail.

Since it is left it to the state governments to allow setting up of such stores. It is

expected that Congress-ruled states may allow it. Maharashtra and Delhi are the main states where the international retailers will be keen to open stores in the beginning is currently ruled by Congress and may not face any opposition to open stores.

Whether new projects will come?

In the past five years, commercial and retail real estate developments were put on

hold as rents stayed stagnant, dampening chances of good returns on investment. This was especially true for retail, in which realtors had even converted some projects to residential schemes.

New projects are expected to be launched in 2013-14 to capitalise on the FDI approval that may cater to the needs of future requirements of the big retailers.

FDI in multi-brand retail will increase demand for space.

In India, per capita mall space among top seven metro cities is estimated at less than one square foot, while the US and Europe average 20 to 40 times that of India

Large format stores..!

When very big retailers coming to India, they may be interested in spaces like 2,00,000 sq ft and above as their size of operations are really big.

Even other companies may look for around 100,000 sq

ft. But the current scenario in India is retail store sizes are in the range of 10,000 to 50,000 sq ft only. Such big spaces of real estate in city centres will be really costly but may be cheaper in the outskirts. But if the stores situated outside the

city limits whether consumers will be interested in going there, we have to wait and see.

But if this concept is successful then it will open up the real estate sector in a big way and there are chances of smaller cities coming near the stores.

This would help to absorb the spaces vacant lying from 2008 in absorption of surplus

retail space in shopping malls across the country.

My thinking

In my recent visit to USA, I had the opportunity to visit number of malls and in view of

large open spaces available in the outskirts of the each town almost all the malls are situated outside the city limits spreading

over few acres with ample parking spaces. Massive spaces occupied by various retail giants at one place If these kind of spaces are created for large format stores

in India on the outskirts of each big city then surrounding that a new city may come up.

Finally..!

There are protests / debates going on not to allow multi branch retail in India but it is a blessing in disguise for real estate sector is concerned.

To conclude, 51 percent FDI in Retail is 100 percent beneficial to Real Estate Sector. Medium to long term, the real estate sector will benefit from this move and this sector as a whole will gain momentum, depth and size.

Other  Major article in Current  B & C Issue 

India’s Top 13 Investment

Destinations -  page 10

ROLL-A-DOOR & FIRE DOOR - page 13

President News – Faceat

FACEAT TRUST, STUDENTS CHAPTER- page 14

SOLAR ALTERNATIVE

A NEED OF THE HOUR - page 22

10 STORIES IN 48 HOURS - page 45Page 22

Page 30

Contact: B & C PUBLICATIONS

Admin Office : Block No. 2, Door No. 431, Mogappair East,

(Behind J.J. Nagar Police Station), Chennai - 600 037. Tamilnadu, India

Ph: +91-44-6454 3377, 4354 0330

E-mail: info@buildingandconstruction.org

www.buildingandconstruction.org

B & C PUBLICATIONS TEAM: 

Editor In Chief:

Dr. KR. Thooyavan

B.E., M.T.P, F.I.E., FITR, F.I.V., PG.DIP.US (ITC-Holland) Ph.D

 Chief Planner & Member (Retd), CMDA

Former Dean Hindustan College of Engg.

Consulting Editor: Architect R.R. Siva, B.Arch.,

Editorial Advisory Board:

Er. A. Veerappan, M.E. (Struct), RLE., M.I.C.I, Dip L.L@A.L

Former Special Chief Engineer TNPWD, Structural

Consultant

Prof A.R. Santhakumar

Emeritus Professor. Dept. of Civil Engg. I.I.T, Madras, Chennai

Former Dean of Civil Engineering Anna University, Chennai

Prof. T. Senthilnayagam

B.E., M.E., (Struct) F.I.E., F.I.G.S., P.G.D.P.M.,

F.I.V., M.I.C.I, M.I.C.A, C.Engg., F.A.C.C.E.,

M.I.B.C, M.I.C.F.R.C, M.I.I.P.M, F.I.T.A.S, P. Engg Chairman,

Association of Consulting Civil Engineers (India),

Chennai Centre.

ER.R.MOHANRAJ

B.E.,M.I.E, F.I.V, PG. Dip. In QS&V. State President

Federation of All Civil Engineers

Association of TamilNadu (FACEAT)

T.V.N. Duraipathy

Interior Counsultant, Chennai

Editor / Publisher : AL. Alagappan

Associate Editor : Ragavan Mohan

Executive Editor : Karthik Leelaram

Editorial Team : K. Ramesh

Photographer : Vimal

Creative Head: B&C Design Studios

Senior Graphic Designer : Shivaa

Legal Advisor : TRK. Muthuraman, B.Sc, B.L.,

Marketing Team : M.Ravi, Muthu Kumar

S. Rajesh Kanna, S. Ganapathi

Admin Head: Uma

Office In-charge: Jayalakshmi

Bankers: Indian Overseas Bank,

Karur Vysya Bank, Kodambakkam, Chennai -  600 024Page 13

Page 46

Share: