NEW DELHI: To give a fillip to the real estate sector that has been one of the worst victims of the economic downturn, the government on Wednesday relaxed rules for allowing FDI in the construction sector including housing by reducing the minimum built-up area and capital requirement for foreign investment in such projects.
The move, it is expected, will help the cash-starved realty sector raise funds. The approval for FDI in real estate sector came after the Cabinet meet on Wednesday evening.
According to a government statement, the Cabinet has decided to reduce the minimum built-up area requirement for FDI in construction projects from 50,000 sq m to 20,000 sq m.
The minimum capital requirement has been brought down to $5 million from $10 million, the government statement said.
Although 100 per cent FDI is allowed in townships, housing and built-up infrastructure and construction developments since 2005, the government has imposed certain conditions.
The investor, according to government statement, will be permitted to exit on completion of the project or after three years from the date of final investment, subject to development of trunk infrastructure.
“It is clarified that FDI is not permitted in an entity which is engaged or proposes to engage in real estate business, construction of farm houses and trading in Transferable Development Rights (TDRs), the government statement said.
The proposal for FDI in construction sector was moved by the Department of Industrial Policy & Promotion (DIPP), under the Commerce and Industry Ministry, to attract more foreign investment in construction and real estate sector that is facing a slowdown and liquidity crunch since last 2-3 years.
In his Budget speech, Finance Minister Arun Jaitley had said that the requirement of the built up area and capital conditions for FDI is being reduced from 50,000 sq m to 20,000 sq m and from $10 million to $5 million respectively.
Real estate industry has hailed new FDI rules in construction sector, saying the move would help cash-starved developers aise significant amount of foreign funds and also complete the stuck projects. Realtors’ apex body CREDAI President C Shekar Reddy said it would help developers get an extra route of funding their projects.
To facilitate FDI in construction sector government has
■ Reduced the minimum built-up area requirement for FDI in construction projects from 50,000 sq m to 20,000 sq.m.
■ Minimum capital requirement has been brought down to $5 million from $10 million
■ Investor will be permitted to exit on completion of the project or after three years from the date of final investment, subject to development of trunk infrastructure
■ The Indian investee company will be permitted to sell only developed plots
■ The Indian investee company shall be responsible for obtaining all necessary project approvals