Relief for cash-starved sector
FDI rule relaxation is likely to help attract investments for new infrastructure, 100 smart cities and encourage affordable housing. However, results will not be evident immediately, but in a year or so
The gover nment has relaxed the foreign investment rules in the construction sector. This will make it easier to attract investments for building new infrastructure, the 100 smart cities proposed by prime minister Narendra Modi, help achieve the target of constructing about 11 crore houses to achieve the government’s vision of Housing for All by 2022 and encourage development of housing projects both in prime areas of large cities and in Tier-II towns .
How will this step help investors? It will enable them to enter the market, sell assets or transfer their stakes and repatriate proceeds before the completion of a project. The new rules, proposed in the new government’s Budget, include reducing the builtup area requirement for foreign direct investment (FDI) in construction projects to 20,000 square metres from 50,000 square metres. The minimum capital requirement had also been reduced to $5 million from $10 million.
This reduction in the devel- opment size will benefit TierII and III cities where large projects typically suffer from poor demand. Further, locations around the golden quadrilateral and Delhi Mumbai Investment Corridor (DMIC) can also reap benefits out of this as per new FDI norms new towns and cities have been planned in these corridors.
The approval of the cabinet to the revisions in norms for allowing 100% FDI in construction is a step that will be beneficial for the next phase of urban development as envisioned by Modi under the ‘100 Smart Cities’ project. Locations around the golden quardrilateral and DMIC can also look at reaping benefits out of this as new FDI will also be attracted to new towns and cities planned in these corridors. However, the revised policy will first help in infusion of investment in housing development projects in metropolitan locations in the suburban and peripheral locations as well as for niche housing projects in city centre locations of Delhi, Mumbai and Bengaluru, says Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield.
However, while t his i s expected to provide an immediate breather to the cashstrapped real estate sector, FDI will not begin flowing within the next 24 hours.
According to Shishir Baijal, chairman and managing director, Knight Frank India, “Overall this is a positive move and only reflects the government’s intention to revive the sector. Relaxing FDI norms will open up the capital markets, t hereby attracting investments into the sector. It’s also a great fillip for affordable housing which only creates more opportunities in the market, especially for investors, who will benefit the most with the three-year lock- in period now being revised. However, we need to understand that FDI will not begin flowing within the next 24 hours as we foresee another eight to 12 months for the decision to bear fruit”.
“The announcement will widen the base of investors, especially mid- sized financial institutions. It will also encourage new development projects in prime areas of large cities and in Tier- II t owns,” says Anshuman Magazine, CBRE South Asia chairman and MD.