The funds-starved real estate sector is enthused with the government’s announcement last week regarding the easing of foreign direct investment (FDI) norms in the construction sector. A 100 per cent FDI will now be permitted under the automatic route and this gives them the liberty to invest in all real estate classes.
From the perspective of the overseas investors, the removal of the lock-in period of three years, which was a major deterrant, is expected to significantly kindle their interest. So investors can exit on completion of the project, or after completion of support infrastructure in the project like water supply, street lights, internal roads etc. are completed.
"It also means that there will be more pressure on developers to accelerate construction of projects being funded, so that these funds can exit at a favourable time," Ramesh Nair, COO – Business & International Director, JLL India, a real estate consultancy said in a statement. "The new exit feature correctly assumes that successful deployment of such infrastructure is a major landmark in a project’s lifecycle, post which all other development will happen assuredly and according to stipulated timelines."
Besides, in construction of development projects, the minimum built-up area requirement has been reduced to 20,000 square metres from the earlier 50,000 square metres, increasing the scope for smaller projects in crowded metros.
L.K. Jain, National President, Confederation of Real Estate Developers Associations of India (CREDAI) told this correspondent that now more players could take advantage of it. "It opens up Tier 2 and Tier 3 markets and even smaller properties in Tier 1 cities will benefit."
To boost affordable housing, developers will be exempt from restrictions in area and minimum capitalization if they commit 30 per cent of the project cost to affordable housing. But Mr. Jain said, "the announcement could increase interest in affordable housing but proper reforms are needed for affordable housing. Besides, there is no queue of foreign investors waiting and they will commit funds only cautiously."
