Govt plans to allow FDI to promote low-cost homes
Delhi- In order to promote low-cost housing projects, the government is planning to allow foreign direct investment (FDI) in such projects, subject to a host of conditions, including a lock-in period and minimum capital requirements.
At present, FDI is banned in the real estate business but 100 percent FDIis allowed in the construction development projects through the automatic route. Similarly, as per sources, 100 percent FDI would be allowed in low-cost housing projects as defined by the government and subject to riders that may be slightly less stringent than those for construction development projects.
The Reserve Bank of India (RBI), last year, had allowed external commercial borrowings (ECBs) up to $1 billion (aggregate) in low-cost housing projects, in which at least 60 percent of the permissible FSI is reserved for units with a maximum carpet area of 60 sq m. The ECB limit can also be used for slum can be used for slum rehabilitation projects. The cap is likely to be increased shortly, said sources.
Sources claim that 100 percent FDI in low-cost housing would be part of the upcoming revised FDI policy. The government is planning to boost the slowing economy of the nation by giving special incentives for infrastructure and construction sectors. However, increased housing construction activity helps allied sectors such as cement, steel, brick, wood, glass, etc in providing more jobs.
The problem is that the RBI has had reservations about allowing FDI in pure-play real estate, considering its exploratory nature and subsequent risks to the banking sector. It depends on RBI as what decision would be taken.
The government is set to impose few conditions on FDI investors in low-cost housing projects that incorporate a minimum capitalisation (say $10 million) and a lock-in period (of three years). Undeveloped plots would be prohibited to be sold and project completion could be made compulsory within a given time.
The housing finance regulator National Housing Bank (NHB) has calculated the overall market size of affordable housing at around Rs 25,000 crore. This move seems to attract private developers to focus more on affordable housing projects. Many realtors also expressed their views saying that the move will help reduce shortage and spark investor interest, besides attracting multilateral institutions like the World Bank and Asian Development Bank in affordable housing in India.
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