Exit may become easier for foreign investors
An ‘easy entry easy exit’ option has been recognised as a necessity to attract foreign investors into construction and real estate sector, the government has come to realise. This is in order to give a leg up to the vision of developing cities. The FDI policy for the Indian real estate sector was liberalised very recently with the entry of the new NDA government. The government is now considering doing away with the condition of three-year lock-in period for exiting a project.
In addition to this, there are newer channels of funding for the cash-trapped construction sector. The minimum capitalisation and minimum area limits have been brought down by half. The minimum capital requirement is reduced from $10 million to $5 million. Similarly, the minimum area requirement is also 50,000 sq metres to 20,000 sq metres.
After a lot of debate, the conclusion formed is that the lock-in period is inconsequential. This is because the development of such infrastructure takes 2-3 yrs. investors are now permitted to exit on completion of the project or after three yrs from the final investment, subject to development criteria such as roads, drainage, etc.
The Department of Industrial Policy and Promotion (DIPP) will soon come out with a notification regarding the FDI policy. The government opines that this initiative should be used to its full advantage by the private sector.
It has been pointed out that while this will improve the liquidity situation, it will also increase price competition between developers. Nonetheless, there is excitement in the industry. According to Anil Sawhaney, the developer community has long demanded this relaxation.
After Prime Minister Narendra Modi promised a house for every family by 2022, there is a huge potential of the sector is immense. Between April 2000 and August 2014, the Indian construction sector has gained FDI worth $23.75 billion or 10 per cent of the total FDI in India during the time.
There are still teething problems that need to be addressed for the sector, but the project is being developed in phases.
Source: Financial Express
Department of Industrial Policy and Promotion, DIPP, FDI policy, Foreign investors, Real Estate Sector
