Govt relaxes FDI norms for construction, real estate sector

In a boost to cash-starved real estate industry, government relaxed rules for FDI in the construction sector by reducing minimum built-up area as well as capital requirement and easing the exit norms.

The proposal to amend the FDI policy in construction development sector was approved by the Union Cabinet.

In view of depleting FDI inflow in construction and real estate sector in last couple of years, the Cabinet decided to reduce the minimum floor area to 20,000 sq mt from the earlier 50,000 sq mt. It also brought down the minimum capital requirement to $ million from $0 million.

In case of development of serviced plots, the condition of minimum land of 10 hectares has been completely removed, an official statement said.

Although 100 per cent foreign direct investment was allowed in townships, housing and built-up infrastructure and construction developments since 2005, the government had imposed certain conditions.

"These measures are expected to result in enhanced inflows into the construction development sector... It is likely to attract investments in new areas and encourage development of plots for serviced housing given the shortage of land in and around urban agglomerations as well as the high cost of land.

"The measure is also expected to result in creation of much needed low cost affordable housing in the country and development of smart cities," the statement said.

Although the Cabinet has not reduced the 3-year lock-in period, it has permitted foreign investors to exit on project completion or 3 years from the date of final investment subject to the development of trunk infrastructure.

The government said the relaxation was necessary as FDI inflows in the sector, which witnessed a steady rise during 2006-07 and 2009-10, have started declining.

"To step up investment in construction development with its backward and forward linkages for many other sectors of the economy, it is felt that some liberalisation and rationalisation of the FDI policy...could be the necessary catalyst to give a boost to the sector," it added.

Between April 2000 and August 2014, the construction sector received FDI worth $3.75 billion or 10 per cent of the total FDI attracted by India during the period.

Realtors apex body CREDAI president C Shekar Reddy said it would help developers get an alternative route of funding for their projects.