The government today eased Foreign Direct Investment (FDI) norms for construction development sector that is expected to give a substantial boost to the sector in terms of greater foreign capital inflows.
Notifying the decision taken by the cabinet in November, the Department of Industrial Policy and Promotion (DIPP), the nodal agency for FDI, said foreign developers will now be allowed to exit a certain project onlyafter completion of the project or after completing the basic trunk infrastructure such as roads, water supply, street lighting, drainage and sewerage.
Earlier foreign developers were not allowed to take outthe invested amount before three years from completion of minimum capitalization.
However, now the foreign firm can take their money out ortransfer its stake to another non-resident company before completing the projectafter approval from the government.
"The relaxation of the lock-in period comes as a majorrelief for the industry. The new rules allow FDI in smaller projects, which is a big relief. Besides, by doing away with the lock-in period the government hasnow made the norms much simpler," said Akash Gupt, executive director at PwC.
In a significant step the government today also allowed foreign investors to invest in completed project for "operation and management."In other words, 100% FDI under the automatic route can now come inprojects that have been completed by way of townships, malls and shoppingcomplexes and business centres, said the new press note.
This was not allowed earlier.
"The notification issued today eases foreign investmentrules in India's construction sector, which has been troubled by problems suchas paucity of funds and regulatory bottlenecks. Projects in semi-urban andperipheral locations of tier I cities or locations in tier II and III citiescan also take off at this scale, as land prices in these regions and totalcapital investment requirement are attractive," Sachin Sandhir, Global ManagingDirector - Emerging Business and MD - South Asia, RICS.
Besides, under the new policy, the DIPP has also reduced minimumarea requirements. Unlike the previous policy, foreign real estate developerscan now invest in construction development projects having a minimum floor areaof 20,000 sq meter.
Earlier the requirement was 50,000 square meters ofbuilt-up area while the capital requirement was decreased from $10 million to$5 million.
"This is an extremely positive step and virtually meetsmost of the demands made by the industry. Moreover, by permitting transfer ofstakes between two non-resident companies the government has literally openedthe floodgates for FDI in the real estate sector," said Punit Shah, co-head oftax at KPMG.
Between 2003 and 2013, the construction developmentsector received about $22 billion in FDI, 11% of the overall FDI intothe country during this period.
However, since 2012, FDI inflow into the sectorhas slowed drastically. In 2012-13, it fell to $1.3 billion from $3.1 billionthe previous year. During the first four months of this financial year, only$167 million has flowed into this sector.
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