India Emerging As Major Investment Destination For Chinese, Japanese Developers

Given the current prime minister’s focus on improving India’s stature amongst the global investment community, there has been a big change in India’s image as a business and economic hub. After 100% foreign direct investment (FDI) was allowed into the real estate industry, it was only a matter of time before foreign developers made big investment announcements.

One of China’s most prominent developers, Dalian Wanda Group, signed a memorandum of understanding (MoU) earlier this year with the northern state of Haryana to develop ‘Wanda Industrial New City’. The investment of USD 10 billion, phased out over the next decade, is a very significant outlay by any Chinese company in India.

Other Chinese developers are also interested in India and most likely to follow suit. A MoU signed between China Fortune Land Development Company Private Limited (CFLD) and Haryana state will see large format industrial parks come up in the state. Gezhouba, another prominent Chinese construction company, has in-principle agreed to invest INR 10,000 crore in irrigation projects in Telangana state.

It will be interesting to see if larger deals are signed in 2016. With China experiencing a slowdown in their own economy, the developers there will get an opportunity to benefit from India’s growth story. The Wanda investment will be one of its biggest, so far. It is also bigger than most deals that other Chinese companies investing abroad carried out in 2015.

Even for the Indian real estate industry, it will be among the biggest investments in the residential and retail asset classes by a foreign developer. Increased participation by foreign players is expected to help in the development of quality projects, which will benefit end-users and simultaneously create opportunities for Indian investors too.

It will be interesting to observe the implications of Wanda’s strategy and the innovations such foreign players bring to India as they compete with local and well-established players to capitalise on the opportunities that India gives them now.

Foreign developers are also going to look at partnering with their Indian counterparts. Interestingly, large residential projects are of particular interest to other Chinese developers. It remains to be seen if commercial asset class also gets on their radar in the near future.

The Wanda Deal

Wanda plans to invest USD 10 billion in the next 10 years to construct industrial townships, retail and residential developments. According to media reports, construction of the phase-I of ‘Wanda Industrial New City’ is likely to begin in 2016 and it will be spread over 1,300 hectares. It will comprise an industrial park that will house companies from various sectors, such as software, automotive manufacturing, machinery, health care, education and other industries. The first phase is anticipated to be completed in the next 3-5 years.

The Japanese could be next

Japanese and Chinese private equity investors are also looking at entering India’s real estate sector. Japanese developers are keen to explore strategic partnerships and enter into joint ventures with Indian builders, and are particularly interested in industrial projects. There is likely to be an inflow of at least USD 2 billion in investments from Japan into the Indian real estate market over the next three years.

Interestingly, the RICS-JLL survey this January had shown that 62% of the respondents - all seasoned real estate investors - felt that institutions from Japan and China could come knocking to the Indian real estate market in 2016.