Retail developers head to India

Industry leaders see the country as an opportunity for UAE business expansion but warn of oversaturation.

India's retail industry is booming, with about 300 mall projects currently underway.

MUMBAI // Oversaturation of the UAE's retail sector will drive Gulf developers to India to increase profits, industry leaders gathered at the India Retail Forum said yesterday. Reforms to India's once obstructive foreign direct investment policies are seen as the driving force needed to ignite the country's buoyant retail industry by luring property developers from around the world.

Previous barriers, including excessive red tape, have stalled progress to seize the massive opportunities that India's retail property market has to offer. However, policy reforms at the start of this year have opened the doors for more companies to take advantage of India's booming retail sector. "The market in the UAE will get saturated very soon, so retail developers have to look at other markets," said Shavak Srivastava, the managing director of Sq.Ft. Consulting UAE, based in Dubai. "India has had a lot of restrictions as far as foreign investments, but this is now changing. We will see a lot of developers going into the country."

Worth approximately US$350 billion (Dh1.28 trillion) a year in sales, India's retail sector is expected to woo more than $35bn in investments in the next five years, according to the consultancy Technopak. Currently, foreign developers can undertake construction activities within a space of 50,000 square feet. However, the Indian government is under pressure to raise that ceiling to facilitate higher foreign direct investment in the property sector. While there have been improvements to government policies, industry leaders say more needs to be done.

"There is still a lot of work needed to clean up the mess in the system," said Ashwin Puri, the chief executive of Property Zone, a retail property consultancy. "Traditionally, Indian development companies were family-run, so they tended to keep things close to themselves, but now they are beginning to grasp the benefits of foreign investments, so I think we will see a lot of changes to come." Only six to seven per cent of India's retail industry is "organised", with small businesses traditionally dominating the sector. However, the growing spending power by the country's emerging middle class has created a massive demand for broader, more diverse retail options.

"Around 300 million people are considered part of the middle and upper middle class in India," said Mr Srivastava. "All of these people are potential consumers, so there is a huge potential and much more than anything that is offered in the Gulf." Malls, not private shops, are the order of the day. About 300 mall projects are currently under way across India, many of which cover more than one million sq ft. More than 100 million sq ft of gross leasable area (GLA) is due for completion by the end of the year, according to India's Associated Chambers of Commerce and Industry (Assocham).

Numerous UAE-based developers are already tapping into the Indian market in search of new and prosperous opportunities. Emaar MGF, the property developer's Indian subsidiary, has the most established presence in the country with a number of projects in the works including Central Plaza, a shopping centre in Mohali Hills in Punjab. A spokesperson for Emaar MGF said the company planned to contribute approximately 18 million sq ft of retail space and 55 million sq ft of residential development across India by 2010.

Last year, Dubai-based Al Fajer Properties announced a joint venture to create a property fund in India to facilitate investments by small investors in Dubai. Majid al Futtaim Group is also studying opportunities, although no deals have been finalised. Lulu Group, a subsidiary of Emke Group, also recently started construction on a mixed-used development in the Indian city of Kochi, set to be one of the country's largest shopping centres. The Dh1.2bn multiplex will include a shopping mall, a five-star hotel and a tower geared exclusively for travel and tourism businesses when it opens in 2010.

Despite the ease of foreign investment restrictions, a number of obstacles still stand in the way of real investment in India's retail sector. The land acquisition process is long and tedious, often deterring companies from carrying through with the process. Skyrocketing property prices have also been a concern, however prices have eased in recent weeks. One of the biggest concerns of industry leaders is the lack of domestic training and experience for properly exploiting the market.

"The country really needs to clean up the mess of the system," said Mr Puri. "India has the resources but doesn't have experience, and I think that is where a lot of the more developed markets, like those in the GCC, come into play." [e-mail]