With soaring FDI, India’s real estate rises on the global map

WHEN considering foreign direct investment inflows, the focus is generally on the manufacturing and services sectors of the economy. Real estate is not high on the radar. But this is likely to change now as foreign investment in land and development is rising rapidly. Inflows in the first quarter of 2025 have grown by as much as 30 per cent, bringing the total FDI to $1.3 billion. India is now seventh on the list of top 10 global cross-border destinations for real estate, according to the latest report by a real estate services firm, Colliers.

China and Singapore may top the list, which is dominated by the Asia-Pacific region, but India is now increasingly becoming sought after

as a location for developing office and residential infrastructure.

The spurt in interest by foreign investors could appear inexplicable as land acquisition is considered one of the main hurdles in the way of launching greenfield projects. In fact, this is an issue consistently cited as needing urgent reforms in order to improve the ease of doing business for both domestic and foreign investors.

The turnaround has come due to several developments that have not only made land acquisition easier but also given a spur to development of regional and office spaces in major metros as well as smaller towns.

The first and most significant is the digitisation of the economy that has finally percolated down to the real estate sector. A segment of the economy that has been dominated for decades by the use of hard currency, much of it in the form of unaccounted funds, has now moved towards the formal economy. This does not mean that the notorious “black money" economy has been eliminated, but it does mean that there is a shift towards greater transparency and formalisation of transactions.

Another issue in acquiring property that has been a major hurdle in the past is the lack of updated data on land records. This is gradually getting resolved so that contentious ownership questions are set at rest.

Real estate expert and author of books on property issues Jayashree Kurup says the digitising of land records is proceeding at a rapid pace. In fact, it is being done more quickly in rural areas than urban segments. This has eased the process of land acquisition considerably in recent years.

These measures are being taken in the backdrop of an economy that is exhibiting buoyancy and resilience despite continuing geopolitical tensions. This is one of the biggest factors for the pick-up in the interest of foreign investors at a time when the global economy is slowing down. Persistent conflicts in Ukraine and Gaza as well as uncertainties over US tariff policies have created recessionary conditions in many parts of the world.

In contrast, India has emerged as a bright spot, with growth expected to reach around 6.5 per cent in the current fiscal. This will ensure that it retains the tag of the fastest growing large economy in the world for yet another year.

Along with economic resilience, there is also a healthy rate of return on investments in the real estate. This is likely to improve further with the central bank’s latest decision to cut interest rates further. Mumbai and Bengaluru are reported to have the most lucrative real estate markets. But even tier II and III towns are said to be yielding worthwhile returns.

The upswing in commercial real estate has also been given a push by the expansion of global capability centres (GCCs) all over the country. Currently, there are estimated to be ,1800 GCCs in operation and this number is set to rise steeply. This year’s budget has formulated a national framework to guide states in promoting GCCs in tier II cities. It will suggest measures to enhance the availability of talent and infrastructure, building bylaw reforms and mechanisms for collaboration with the industry.

This is expected to give a huge boost to commercial real estate in the smaller towns in the country. According to the budget, the GCCs are likely to contribute 3.5 per cent of India’s overall GDP by 2030.

A push to real estate development in tier II, III and even tier IV towns has also been given by the creation of urban facilities like augmented water supply as well as improved transport infrastructure. Metro systems in smaller towns have enhanced accessibility while rising digital penetration has brought retail availability of big brands right to the doorstep of consumers.

Rapid urbanisation in many states has equally fuelled the interest in real estate development beyond the traditional focus on the big metros. Tamil Nadu and Kerala are the states where urbanisation is moving faster than other parts of the country. Though the former is considered the most highly urbanised right now, it is estimated that Kerala will reach 90 per cent urbanisation by 2036.

Given this scenario and the increasing inflow of investments into real estate, what becomes more important is the need to ensure that urban development is carried out in a structured and sustainable fashion.

Kerala is already preparing for a more urbanised future. It has set up an urban policy commission to consider these issues and has submitted an interim report. Other states, especially those that are urbanising rapidly like Tamil Nadu and Maharashtra, also need to undertake planning to ensure that growth is carried out in a systematic manner rather than the haphazard way in which cities have grown in the past.

On the positive side, real estate development can lead to an enhancement in employment opportunities. The budget estimated that the GCCs alone would provide employment to 4.25 lakh persons in the current year. This does not take into account the potential for job creation as a result of expansion in the real estate sector, especially in construction of residential and commercial infrastructure.

For this reason alone, it is clear that more attention needs to be paid to this sector. It needs much greater support in terms of developing the modern urban amenities being sought by an aspirational middle class, whether in the giant metros or in the smaller towns.

Sushma Ramachandran is a senior financial journalist.

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