Ease in FDI norms set to boost the real estate market?

In an endeavour to boost foreign investments in the emergent Indian real estate market, the NDA government has come up with few significant changes in the FDI regime for construction sector. Although the changes are being seen as radical by the market, the norms seem to be more directed towards rationalising and simplifying the complicated foreign investment process in Indian real estate. How will they affect the real estate industry; let’s have a look.

"The change is impressive and the timing excellent" states Nitesh Punjabi, Manager, Investment Services. He feels that New FDI policy has already opened up flood Gates for the Indian real estate. Read the complete story here.

Reducing minimum built-up area to 20,000 sq. metres in construction development projects and minimising capital requirement within six months of commencing business to five million US dollars; the new FDI norms are set to encourage investments in smaller projects. With previous threshold limits; mid-size and small developers were unable to get funding even after having a good track record. But with the improved figures, affordable housing projects in tier II and III cities or projects with lesser capital requirements, will definitely get the much needed boost.

The new FDI rules also ease the entry and exit of foreign investors. The revised norms now permit the investor an early exit if a lock-in-period of three years, with reference to each tranche of foreign investment, has been completed. Also stake transfer from one non-resident to another non-resident, without return of investment, will no more require any lock-in-period or government approval. Anyhow, exit is now permitted any time, if project or trunk infrastructure is completed before the lock-in period, making it easier for investors to put in their money in Indian market.

Although the new liberal FDI policies are much praiseworthy, but few important things still need restructuring. The lack of clarity and frequent flip flops in proposed policies along with complicated, time consuming approval processes, still bother the FDI inflow. Unlike other countries, the various approvals to commence work in India take two to three years, delaying the projects from three months to three years. All these reasons not only cause huge cost overruns but also hurt the investor’s sentiments. And with easier exit norms now, each construction phase will be considered as a separate project and may pave ways for easier exits depending on every completion stage.

The much awaited amends in the FDI policy are expected to result in improved inflows, but it will be interesting to see if these reforms will be sufficient enough to resurrect the slouching Indian real estate in the long run. Only time will tell.

About the author

Surabhi Arora, leads the research team in India and has more than 13 years of experience in carrying out multi-disciplinary research and analysis in the area of finance and real estate industry. Surabhi specialises in real estate economics, policies, commercial and residential real estate research with in-depth knowledge of market dynamics across major markets in India.

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