FDI in retail sparks new mall mania

Lalatendu Mishra   Mumbai     Last Updated: November 28, 2011  | 15:34 IST

In early 2009, DB Realty shelved plans to construct India's biggest mall in the outskirts of Mumbai and converted the 2.5 million sq feet area project into a residential development project.

A year before that DLF had also put its ambitious 4.5 million sq ft mall project at Gurgoan on the backburner due to lack of demand for mall space. So were dozens of other real estate developers who had ventured into retail real estate, anticipating high growth.

As the economy started rolling towards late 2009 and early 2010, real estate developers focused on residential projects, shelving even hotel projects which have high gestation periods.

The tide seems to have changed now with the Cabinet decision to allow 51 per cent foreign direct investment (FDI) in multi- brand retail and 100 per cent FDI in single brand retail.

Anticipating a boom in modern retail format stores and hypermarkets, real estate developers have now lined up investments to the tune of Rs 20,000 crore to set up malls in demand centres.

Two of India's biggest real estate developers, DLF and Unitech, have reportedly announced investment plans of Rs 7,000 crore in mall development spanning the next three to five years.

DLF, which already has 10 operating malls in India, is planning to add another four million sq ft mall space at new projects.

Unitech, which has three operational malls currently, is planning to add another 13 malls with four million sq ft space in the coming years, analysts said, adding that almost all large realty players have directed their energies towards malls as residential realty has been severely affected due to high property prices.

Unlike residential real estate, malls and commercial real estate are considered assets of the realty firms as they get rentals by leasing them out.

Some have even started eyeing bank funding for such projects.

" The retail real estate sector will undergo a transformation and we expect large retail park suburban formats and large million square foot malls to be more in demand over the coming few years," said Anshul Jain, chief executive officer (CEO), DTZ India.

Even though the Cabinet decision has been strongly opposed by the BJP, Left and some regional parties, realtors expect more than 30 per cent increase in rentals of retail space as there would be a mad scramble for good quality retail space as well as storage space for logistics operations.

In some cases, foreign retail giants are expected to purchase large retail space as a long- term investment. Some real estate companies are readying up for such deals.

Recently, Germany's Metro Cash & Carry had purchased a 50,000 sq ft mall space from Kanakia Spaces in Mumbai's western suburbs for Rs 120 crore.

Many more such deals are in the pipeline.

"The (Cabinet) announcement will propel the retail sector substantially with approximately $10 billion as FDI in the next three to five years," said Shrinivas Rao, CEO-Asia Pacific, Vestian Global.

Considering that the decision has been opposed by several chief ministers, even if Parliament approves it, the impact of FDI flow will be limited to Maharashtra, Delhi and some other Congress-ruled states. Under such circumstances realtors should remain guarded in their exposure to malls.

Courtesy: Mail Today 

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