Liquidity hungry real estate sector thrilled over relaxed FDI norms

The liquidity-starved real estate sector in India has unanimously welcomed the government’s decision to revise the foreign direct investment (FDI) norms in the real estate sector.

There has been a relaxation in norms relating to the built-up area, capitalization and the lock-in period. Also the minimum built-up area has been reduced from 50,000 square metres to 20,000 square metres and the minimum capitalization has been halved from $ 10 million to $ 5 million.

India’s construction, housing and real estate segments’ share in total FDI has fallen from 5 per cent in 2013 to under 3 per cent as of the current fiscal until August, according to JLL India, a real estate consultancy. ``In fact, its share has been consistently falling over the last six years since 2009-10 when it stood at over 20 per cent.’’

Anuj Puri, Chairman & Country Head, JLL India said developers continued to reel under high levels of debt even as the channels of funding have shrunk. ``The easier rules will help faster completion of projects delayed by a squeeze on funds due to elevated debt levels.’’

``It is a good step from a broader policy perspective,’’ L.K.Jain, President, Confederation of Real Estate Developers’ Associations of India (CREDAI) told this correspondent. ``It will boost large scale investment in the sector and funds can also invest in projects in suburban areas and smaller cities. Smaller projects too can also attract FDI and FDI inflows could go up three times in the next two years.’’

However, the move is not likely to have an immediate impact, Mr. Jain said, as demand was still poor and interest rates needed to moderate.

Agreeing that interest rates were high, Rohit Gera, MD, Gera Developments, felt the sector was reeling under sluggish sales and low consumer sentiment. ``While more funds into the sector will lead to more supply, unless demand picks up, the introduction of supply only leads to more pricing pressure and lower margins for investors. If we do want to see a flood of investment, it is imperative that the government simultaneously addresses the demand side of the equation as well.’’