Government of India approved easing of rules for FDI in the construction sector in regards to built-up area, capital requirement and exit norm.
The floor area is reduced to minimum 20,000 sq mt from the earlier limit of 50,000 sq mt. The minimum capital requirement also reduced to minimum of USD 5 million from earlier USD 10 million.
The earlier condition of minimum land requirement of 10 hectares has been removed, In case of development of serviced plots. Apart from a better inflow of money in construction sector, new areas like development of plots for serviced housing and low cost affordable housing and development of smart cities,would attract more investments.
Foreign investors are now allowed to exit either on project completion or 3 years from the date of final investment. FY 2006-07 & FY 2009-10 witnessed a rise in FDI in the construction sector and since then it was declining consistently; government’s decision to liberalise the FDI policy will work as a catalyst to boost the sector, some experts feel.
Developers would get an option route of funding their projects; and if committed at least 30 per cent of the total project cost for low-cost housing then centre has also excused earlier conditions of minimum floor area and capital investment required both.
Since last 2to 3 years the real estate sector has witnessed a slowdown resulting into liquidity crunch and huge postponement in completion schedules of residential and commercial projects.
Investments inflow in construction and real estate sector would contribute to growth in economy as it would trigger infrastructure development and more employment would be created. The overall growth would eventually create demand for building products..
This relaxation move is also in line with the government’s budget (2014-2015) announcement on affordable housing and Prime Minister Narendra Modi’s vision of “Housing for all” by 2022.