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

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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.

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