The last minute inclusion specifically prohibiting FDI in farmhouses while banning foreign investment in real estate has surprised many. If Prime Minister Manmohan Singh’s original intention had been implemented, it would have meant the entry of big foreign players who would have made housing prices competitive and brought down the prevailing high rates of land.
A large number of corporate giants like Tatas, Adanis, Godrejs, ITC etc have entered the $16-billion real estate industry with a bang. They have started building new towns and creating business spaces. It would have been a boon for the housing sector if it was opened up for FDI. The government is committed to creating a million houses every year and inflow of foreign money would have given a boost to the critical infrastructure sector.
Instead, it is learnt that the PM changed his stand at the last moment after having obtained information that big realty companies in cahoots with politicians who have parked shady money in real estate all over the country have cornered large tracts of land. According to the trade, private companies floated by active political leaders of all colours, retired civil servants and builders have acquired massive land banks comprising over 5,000 acres in the NCR region and around various metros all over the country.
The Prime Minister Office was warned they have already tied up with foreign real estate companies to invest in India for development of farmhouses. It was also feared that black money stashed abroad would return through dummy companies for the construction of luxurious farmhouses. Farmhouse sector market is estimated to be around Rs 20,000 crore at present and eyes of major international players are set on this.
Since powerful people with connections at the right places own large tracts of land in almost all the states, especially in Haryana, Punjab, Rajasthan, Andhra Pradesh, Madhya Pradesh, Maharashtra and Tamil Nadu, they have been mounting pressure on the local authorities to amend the laws and even Master Plans to allow the construction of farmhouses. They have bought land at throwaway prices. Some states have suitably amended their building bylaws to permit construction of farmhouses on one acre of land. For example, there is a proposal to amend Delhi’s Master Plan so that a farmhouse with a constructed area of 2,00,000 square feet on a one acre plot of land is allowed as against just 1,200 sq feet permissible on a two-and-a-half acre now.
But a total ban on FDI in farmhouse construction could also help the land sharks and speculators to artificially inflate the prices and create more black money. Shortage of funds also compels the developers to sell smaller plots and create slums. In the absence of any regulatory mechanism, the real estate sector has become a den of corruption in which gullible home seekers are fleeced.
Lawmakers have been dragging their feet on a proposed regulator for the black money-laden real estate sector. The politician-realtor nexus may be the reason The Real Estate Regulation and Development Bill, 2012 has not translated into a law for several years now.