The global events of the last two years have not only had a short-term impact on companies. Restrictions of the pandemic, delivery bottlenecks, missing (raw) materials, exploding costs and now also collapsed procurement and sales markets in Eastern Europe. But sanctions and, above all, the uncertainty about what developments will come our way also influence global corporate strategies.
Suddenly many companies are thinking about locations that were not previously in focus. Or have not yet been taken into account. But at the same time they offer high potential – not just for the moment, but also in the long term. Or the companies intend to expand existing activities in growth markets or supplement them with further business activities.
We are currently increasingly aware that companies are recognizing India's role as an international, growing and sustainable market and, above all, as a production location. We are increasingly looking for suitable properties for companies in a wide variety of industries: mechanical engineering, plant engineering, automobiles and the chemical industry.
The search for a location and, above all, a property is not only a crucial step in setting up your own production and/or sales structures, but also the foundation for further company development in India. The choice of location cannot be decided arbitrarily. Some facts play a crucial role: proximity/distance to customers and suppliers, staff availability, infrastructure, costs, etc.
However, the availability of land is low and the prices are very high, even by international standards. This makes the search for suitable property difficult. Entrepreneurs usually encounter very similar challenges, which often lead them to fail.
Lots of land and little usable space
The size of the subcontinent may lead an outsider to assume that the availability of land in India is virtually “infinite”; after all, the area is 3.287.590 square kilometers (in comparison, Germany only offers 357.340 square kilometers). In reality, however, the suitable area is significantly smaller.
Most of India remains undeveloped and undeveloped. However, this is usually land that is a) unclassified or b) classified as “agricultural land”. Indian land use planning does not permit the establishment of industrial or commercial uses on unclassified or differently classified land. Although a “reclassification” can be carried out, the time required is often unplanned and the outcome is uncertain.
Which locations are even worth considering if around 95% of the area cannot be used? Which criteria must be taken into account and included in the search?
In short: Buying such a property still involves major time and financial risks for the buyer. In the past, it has actually often happened in India that purchased properties were not approved for the intended use and thus became practically worthless for the buyer. In practice, buyers often try to create “facts with stones” or sellers reassure the buyer (“You have to start building before you can apply for the building permit”). However, it is usually not taken into account that this approach makes oneself extremely vulnerable to the authorities, which almost always leads to considerable covetousness among the officials involved (= risk of corruption).
Searching for property involves challenges and potential for conflict
When looking for a suitable property, you always come across challenges that you have to deal with. Here are some examples:
Unfortunately, in the past, real estate transactions in India were often misused for the purposes of money laundering and tax evasion. As a result, many actually interesting properties were out of the question because the (Indian) sellers and buyers, for example, demanded large amounts of cash. A deal that European buyers and sellers could not and did not want to get involved in. We ourselves have experienced when selling property that around 80% of interested parties do not see the property, but want to know what part of the sum can be paid in cash.
These cash transactions have now largely fallen out of fashion in India, partly because the investigative authorities have become so good that such transactions are subject to special scrutiny. In addition, relevant laws and currency guidelines were adapted so that the opportunities for money laundering could be significantly reduced. Nevertheless, attempts are often made to generate additional income through other means, particularly through private sellers. For example, by selling additional services, such as the construction management function.
Unclear ownership and dependencies
A particular difficulty is the inadequately developed land registry system. There are often local “land registers” that are maintained at village or city level. However, these were not and are not managed with the same level of precision as in Germany. Therefore, before purchasing a property, it is often unclear what the exact ownership structure looks like. In short: Who is the owner and therefore the legitimate seller?
Have the ownership relationships been clarified? Is a background check necessary to make connections and avoid complications down the line?
It becomes particularly difficult if you already have your own teams on site. This is usually involved in the search for a property. Due to personal interests, in the worst case scenario only a small excerpt of the options actually available is presented.
In the worst case, only a small selection of the options actually available are presented due to the personal interests of those involved. Of course, there is a lack of transparency. In addition, time is used as a means of pressure.
Basically, it is important to avoid becoming dependent. Be it in the form of non-existent alternative properties - a fact that the seller can exploit and artificially inflate the price - or by focusing on a specific state. Because the desired location is not always the most suitable.
WB Projects: Property search carried out
