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FDI in retail is all about real estate

A real estate partner in a retail JV works better than an existing retailer, as he does not interfere with operations and has the huge chunks of property that global players like Walmart would need.

Forget buying stocks of retailers on the decline after FDI for retail is cleared, it is the real estate companies that will be the biggest gainers. Communications and IT minister Kapil Sibal in his speech on the ongoing debate in the parliament said that retailers coming to the country to set up shop will not be doing so in Chandi Chowk (populated area in Old Delhi) but in the NCR (National Capital Region outskirts of Delhi).

As far as Delhi is concerned, a sizeable portion of land is held by companies like DLF. The average size of a Walmart supercenter is around 200,000 square feet while a discount store is generally 100,000 square feet in size. The average size of a Pantaloon store in India is 30,000 square feet while that of Big Bazaar is 50,000 square feet.

Such huge chunks of real estate in city centres will be prohibitively expensive, but will be much cheaper on the outskirts. Having said that, real estate in India costs much higher than in other parts of the world where these major retailers operate.

While it might be a costly proposal to invest in real estate, the possibility of a joint venture with the developer cannot be ruled out. In any case, the government is allowing international players to come in with 51 per cent equity, which means global majors will have to rope in a local partner. A real estate partner makes more sense than an existing retailer, as he does not interfere with the operations.

Real estate firms are saddled with huge land banks as they are unable to develop them on account of an overall slowdown in the sector. The move will not only help them unlock this inventory, but also add a business segment and more respectability in the eyes of the investors.


 

Source : Business Standard