Budget 2014: New FDI norms to attract foreign investors
Foreign Direct Investment in real estate is a good source of funding. In the Union Budget 2014, certain modifications are proposed in the current FDI norms so as to encourage it in Indian real estate market. There are certain conditions and norms in FDI with respect to area, built-up area, capital and time frame. These norms have now got regularised.
FDI got permitted first in the year 2005. There have been many projects which have been funded through FDI. This had a significant importance in the real estate market since 2005. Now these norms have been eased by the government with an intention of encouraging the development of smart cities.
The requirement of built-up area and capital conditions for FDI is now reduced to 20,000 sq. m from 50,000 sq. m and from USD 10 million to USD 5 million respectively. Another significant change in the norms is that if any particular project commits that at least 30 per cent of the total project cost is used for low cost housing, those projects are exempted from minimum area and capitalisation requirements. This is a bold step taken by the government to make the developers build more of affordable and low cost housing for the so called neo-middle class families.
Previously, with the norms of 50,000 sq. m of built-up area for all the projects other than pure residential projects, developers and builders could get foreign investment only to huge projects. Now relaxing the limit of built-up area will result in the entry of more funding into the real estate economy through FDI. Similar views were echoed by Ashok Gupta, CMD, Ajnara India Ltd. He is of the opinion that, “FDI, not just in real estate, will enhance the Indian business environment in all other sectors as well. With better policies and norms, FDI flow in real estate sector will grow manifold which will ultimately boost the economy.”
As the sector is reeling through an acute funding pressure, real estate fraternity is optimistic that FDI will give much-needed fillip to the sector. However, for foreign players to completely settle in India, certain reforms are mandatory.
Adding to the list of reforms, Pradeep Jain, chairman, Parsvnath Developers Ltd says, “A proposal to cut minimum investment to USD 5 million from current limit of USD 10 million would promote small investors to route their investment through India. Similarly, the lock in period should be cut from five years to three years so that an investor gets an opportunity to exit a project after third year itself.”
These change of FDI norms will also result in timely completion of projects. This has been observed when FDI was first allowed in 2005. The foreign investors have a lock in period of 3 years for their investment. So the pressure from the foreign investors on developers ensures timely completion of the projects. New projects and schemes planned by the government such as smart cities and housing for all will be benefitted with the new norms and standards. But the one of the major disadvantages which is seen due to the foreign investment is the hike in land prices. So government should also make sure that the land prices will be in control with foreign investments in place.
