Retail & Real Estate

Western-style shopping Malls are growing in India exponentially, exceeding 600 by 2010. The key driver has been the boom in real estate accompanied by some de-regulation in the retail sector. International retailers, with single or a portfolio of middle to high level brands have been attracted to India – despite remaining regulatory barriers to foreign investments and the ‘still to be profitable’ foreign brands-retail-mall model.

The Opportunity

Investment circles indicate that India is set to become the 5th largest consumer economy by 2025 and the retail industry may generate 3 million jobs by 2010. The boom in real estate and retail sectors continues to alter the Indian physical landscape beyond recognition.

Indian developers have increasingly organised themselves to avail of international public markets, such as the AIM in London. Private equity has raised capital in international markets in the shape of large and small dedicated Real Estate and Infrastructure Funds, investing usually through Mauritius. Large amounts of domestic and foreign money has flowed into the Indian residential and commercial real estate sector – though recently subdued in the wake of the global financial crisis.

Indian real estate developers have structured several partnering options to allow foreign technical know-how, expertise and money into India. International architects, surveyors and engineering firms look to Indian opportunities as residential, commercial and industrial infrastructure is renewed and built – especially by the creation of Special Economic Zones (SEZ) and Technology Parks for IT and Biotechnology. Modernisation and up-gradation of India’s airports alone will release millions of square footage of space for retail, hospitality and commercial usage.

These inflows of foreign money, property companies, global retailers and brand owners have also doubled the “soft risks” of doing business in India


Investing in real estate projects through SPVs or directly in developer companies poses various risks for unwary foreign investors, especially arising from a lack of transparency in land ownership, planning issues, financial dealings and valuation practices peculiar to India. Brand and reputation risk in the hands of ‘wrong’ Indian franchisees and partners is also a serious concern and not to be taken lightly. Soft due diligence on Indian parties and land issues is of particular significance, particularly with political and bureaucratic influences and nexus never far away.


Apart from usual technical, economic and legal elements, issues that need soft due-diligence scanning within the investment strategy/ decisions, negotiation and contracting process, include:

• Cultural issues and practices – sector and community specific – having a significant bearing
• The quality, ownership of Land Bank assets and actual experience of developers
• The reality and validity of land title and valuations
• Planning control complexities and lack of transparency
• Reputation, integrity, prior conduct and political affiliations of local Indian owners/vendors
• Identifying the real stake-holders in negotiations; subtle manipulations
• Reliability of local advisors including real estate consultants
• Lack of transparency, middle men, agents and surprises
• Hidden, undocumented, land/ property disputes and multiple claims
• Dealings with Government/ Bureaucracy – unwritten, undisclosed promises and expectations
• Relying on the local authorities to perform their obligations and on time
• Post-deal governance and stakeholders – the ‘soft issues’ in portfolio companies
• Regulatory and legal frame-work
• Relationship strategy – ‘soft issues’
• Overall contracting strategy – and pragmatic options for dispute resolution


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Of all risk factors, this is most crucial in managing market entry down-side risks. Clients neglect at their peril the history of personal and business conduct of local partners, employees and advisors, their modus operandi with foreign partners, successes and failures, their cultural leanings and tactics, conflicts of interest, and even political affiliations.

A common mistake is to take no steps to uncover these ‘soft’ aspects – particularly in the face of intense friendliness, bonding and warm hospitality for which Indian business culture is well known.

Knowing your local partners can be a complex, multi-layered and prolonged effort throughout the life-cycle of the relationship

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