New Delhi: To help attract foreign funds in construction of townships, hospitals and hotels, the government Wednesday relaxed FDI policy for this sector by easing exit norms and reducing built-up area and capital needs.
The revised norms relating to Construction Development Sector has been notified by the Department of Industrial Policy and Promotion (DIPP). India allows 100 percent FDI in the sector through automatic route.
The new policy has done away with the 3-year lock-in period for repatriation of investment.
"The investor will be permitted to exit on completion of the project or after development of trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage," a DIPP circular said.
It is to be noted here, the official statement issued after the October 29 Cabinet meeting had mentioned that the investor can exit on completion of the project or "after three years from the date of final investment", subject to development of trunk infrastructure.
Under the new policy, the minimum floor area requirement has been reduced to 20,000 sq mt from 50,000 sq mt earlier. It also brought down the minimum capital requirement to USD 5 million from USD 10 million.
In case of development of serviced plots, the condition of minimum land of 10 hectares has been completely removed.
Reacting on the new policy, Chairman & Country Head of JLL India Anuj Puri said: "With the FDI policy now providing investors a much more attractive exit option...FII interest in the Indian construction sector is bound to increase".
DLF's Executive Director (Finance) said the easing of exit norms would give flexibility to investors.
"Smaller projects can now attract FDI with reduction in minimum built-up area requirement," he added.
Although 100 percent foreign direct investment was allowed in townships, housing and built-up infrastructure and construction developments since 2005, the government had imposed certain conditions.
Government expects the new measures would result in enhanced inflows into the construction development sector.
The measure are also likely to result in creation of much needed low cost affordable housing in the country and development of smart cities.
Between April 2000 and August 2014, the construction sector received FDI worth USD 23.75 billion or 10 percent of the total FDI attracted by India during the period.
For affordable homes, government has exempted the conditions of minimum floor area and capital requirement if an investee/joint venture companies commit at least 30 percent of the total project cost for low-cost housing.
With these reforms in place, investors who were shying away due to ambiguity in rules and regulations, will now be able to manage their fund quite well, developers body CREDAI said.
"We believe that the affordable housing would be the biggest beneficiary of this step as funding is now allowed in projects sizing 20,000 sq mt as well," Confederation of Real Estate Developers' Association (Credai) president for the NCR region, Rohit RajModi said.
"This will be a great boon for the industry that has a great potential in the days to come. The new norms will help in resolving the liquidity issue for the industry. Entry of foreign companies will also raise the bar of the products created in the city," Nahar Group Vice-Chairperson Manju Yagnik said.
Construction-development projects include development of townships, construction of residential/commercial premises, roads or bridges, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure and townships.
Under the new policy, the Government may permit repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of projects.
"The ease in rules for exit clause will be an added sweetener for foreign players as it will provide them the flexibility to move from one project to another effortlessly.
"Also, 100 per cent FDI in construction sector will create new avenues such as employment generation right from unskilled labours to architects and interior designers, added infrastructure and number of other related industries," Ambience Group Director Aman Singh Gehlot said.
