Government Eases FDI Rules in COnstruction Sector
The central government paved way for inflow of foreign investment in the construction and real estate sector by easing the foreign direct investment (FDI) policy in the sector. The measures first announced in the union budget after the formation of the new NDA government were finally approved by the union cabinet. Seen as a part of the Narendra Modi government‘s special emphasis on the affordable housing and development of 100 smart cities project, the new cabinet decision has relaxed the minimum built up area and capital requirement for foreign investment in real estate projects.
Real estate observers and industry experts have lauded the relaxed norms in FDI construction as the move is likely to accelerate the flow of funds to relatively small real estate projects that have remained out of bounds for foreign investors. The new rules have reduced the minimum built up area requirement to 20,000 square meters from 50,000 square meters while the minimum capital requirement has been reduced from $10 million to $5 million respectively. Any real estate project that commits channelize a minimum of 30 per cent of the total cost for low cost affordable housing would be exempted from minimum built up area and capitalization requirements paving way for more emphasis on affordable housing by both domestic real estate developers and their foreign funding agencies or partners.
Although 100 per cent foreign direct investment is allowed in townships and other housing projects, the government has been keeping a tab on the investments allowing foreign investment with certain conditions imposed. Now with the relaxation of norms for FDI in the realty sector, the problem of cash crunch faced by even the big real estate developers would is likely to be resolved in the coming months.
While all foreign direct investments under the relaxed FDI norms would come with a lock in period of three years, any request for exit before the lock in period or date of completion of the project would be entertained by the foreign investment promotion board. The rules are likely to attract a large number of both individual and institutional investors as India looks to streamline its real estate and construction sector with the development of both government backed civic infrastructure as well as private real estate development.
Source: TOI
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