While initial reactions remained muted, when asked the question, 90% respondents said, it will increase FDI. Now, considering that this was the government’s main objective, the Modi government has certainly hit the ‘sweet spot’ 

Gurgaon, November, 26, 2015 The new FDI policy has boosted the optimism over the outlook for the FDI (Foreign Direct Investment) in real estate, according to a primary survey released by Colliers International India. Through this survey, Colliers India reached out to key developers and investors pan India to know what the industry experts feel about the recent policy announcements.

According to the survey, about 98% of the respondent believes that the recent changes in FDI will enable ‘ease of doing businesses’ in real estate for foreign investors and strongly voiced that these changes will facilitate an easy exit for them. The clause of treatment of each phase of construction and development projects as a separate project is a major boon for large projects like Special Economic Zones (SEZs), townships, smart cities, industrial parks, etc. Moreover, most of the investors gave a thumbs up to the clause of transfer of ownership and control of Investee Company from resident to non-resident which is now permitted subject to 3 year lock-in period.

The majority of the investors (93%) believe that it will primarily boost the NRI led investment in FDI. The only demand side boost proposed is that the investment by companies, trusts and partnerships owned by NRIs, to be treated as domestic investments. This will lead to more sale of properties/investment into development projects to/by NRI ‘fronted’ organizations. Moreover, investment by NRIs and other foreign investors into Alternative Investment Funds (AIFs), Infrastructure Investment Trusts and Real Estate Investment Trusts,  will now be allowed under the automatic route. While earlier, such investments required an approval from the Foreign Investment Promotion Board (FIPB), so this has been seen as a welcome move

To the question whether investors will now invest in affordable housing in India with the removal of condition of minimum area & minimum capitalization, we received a mixed reaction. Positive responses were about 48%, a few of developers stated that availability of fund is a major concern for this segment. With the removal of minimum area & minimum capitalization clauses, this would be more exciting among small players in the market. Some of them even stated that they have already started exploring opportunity in this sector. A developer who did not want to be named, said “the move is in the right direction, but the impact on the market will take at least one year. Due to a slow market, the Tier 2 developers are sitting on the fence and are not adequately ready for FDI”.

However, 52% of the respondents were on the fence or unsure about the investment in affordable housing.  The reason which was sited was that currently, housing projects (with over 30% project cost devoted to affordable segment) is already exempt from minimum area requirement (press note 10). “A demand side boost is more important to push affordable housing” said one of the developers.

As per the new norms, the condition of lock-in period will not apply to Hotels &Tourist Resorts, Hospitals, Special Economic Zones (SEZs), Educational Institutions, Old Age Homes. When Colliers India research team posed the question whether this condition gives them preferred investment options over other asset classes, the response to this also received conflicting views, with only 33% of the respondents remaining positive, while 19% were negative and majority 48% said may be.

About 48% of the respondents believe that the permission of 100% FDI under automatic route in completed real estate projects for operation and management will help transform Indian real estate to a world class level. 

Welcoming the overall changes, most of the investors and developers interviewed demanded that much more reforms are needed, with respect to clarity over the entry and exit norms and processes.  It is more important for the investor to make desired returns for which projects need to be approved on time, sold on time and be marketable. Hence, a more efficient approval process and a better corporate governance is required; investors should have quicker legal remedies and consumers should have a faster resolution to their woes (i.e. timely construction and quality promised).

To sum it up, Joe Verghese, Managing Director of Colliers India said, “These are not game changers, but amendments are in the right direction and will send the signal that the government is serious about building an investor-friendly environment. The game changer would be amendments that would eliminate the current ambiguity and time required for approvals. That is currently the heaviest shackle holding back the real estate industry.”


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