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Changed Foreign Investment Rules Favour Construction Sector

The Centre has just relaxed rules for the entry of FDI. That means builders can raise money more easily to take up new projects

Published: 01st November 2014 06:02 AM  |   Last Updated: 01st November 2014 06:02 AM   |  A+A-

BENGALURU: This week, the Union government took a decision to suitably change the requirements for Foreign Direct Investment (FDI) in the cash-starved real estate sector which was welcomed by builders since it would allow them to raise funds to complete projects.

On Tuesday, the Union Cabinet relaxed the rules for the entry of FDI in the construction sector by reducing the minimum built-up area from 50,000 sq metres to 20,000 sq metres and also reduced the minimum capital investment amount from $1 crore to $5o lakh. The total FDI in construction seen in 2013-14 was $122 crore across sectors including housing and township. Currently, around $44.6 crore has been attracted between April and August this year.

The move has been welcomed by real estate developers across the board. Kailash Advani, CEO of Vaswani group said, “The recent amendments proposed in the government’s policy regarding FDI in the ‘Construction Development’ sector are welcome in so far as the lowered qualifying thresholds for land, constructed area and investment would enable more medium-sized players to take up large projects with the help of foreign investors.”

Advani also said that with a shortage of 20 million housing units in urban clusters, it was advisable for the government to further relax the entry requirements for FDI in the ‘affordable housing’ and Economically Weaker Sections (EWS) sectors as well to encourage growth.

“The proposed development of the ‘100 Smart Cities’ requires humongous amounts of funding, and offers exciting opportunities for foreign funding to enter the market through the FDI route.”

The feeling is being echoed by several other companies as well. Mallanna Sasalu, Executive Director at Assetz Property Group said, “The move will create a positive atmosphere for both developers and investors as they will reduce the ambiguity on issues like what constitutes a greenfield project. The affordable housing segment will also see growth and these norms along with other positive developments like drop in interest rates, job creations and more will accelerate sales in the future.”

Consulting firm Cushman and Wakefield feels that the move will benefit tier II and III cities where there is less demand for large projects. “The revised policy will first help in infusion of investment in housing development projects in metropolitan locations as well as for niche housing projects in city centre locations of Delhi, Mumbai and Bengaluru,” said Sanjay Dutt, Executive Managing Director for C&W, South Asia.

“Keeping in mind the fact that the proposal is more attractive now, it will help attract investment in the sector from funds that want to limit their exposure. However, the details of the proposal will have to be evaluated before enunciating the complete benefits. Further, the government would have to ensure that the process of acquisition and approval on real estate and construction projects is streamlined to ensure minimum delays to make investment environment more conducive for global investors. So far one of the main concerns has been the delays in commencement and completion of projects in India,” he said.

The FDI in construction has already seen an increase this year according to market estimates with the entry of foreign, sovereign and pension funds through fund managers as well as direct agreements with local developers.

According to C&W figures, the total FDI in the sector stood at `36oo crore in the first half of the year (January-June) which is an increase of 58 per cent from the same period in 2013.



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