New proposal to curb foreign direct investment in real estate
New Delhi: The government might reject the proposal of scrapping all restrictions on Foreign Direct Investment (FDI) below fifty per cent within real estate on the basis that there cannot be any exemptions on rules and regulations like minimum area norms which has been put forward by the Ministry of Urban Development.
With the objective of encouraging and increasing overseas investment within the real estate sector, which has been greatly impacted by the weakening economy as well as the high rates of interest; the proposal was included within the recommendations drawn up by the Ministry of Commerce and Industry’s subsidiary – the Department of Industrial Policy and Promotion.
Furthermore, it has been suggested by the ministry that instead of the prevailing measure of built-up area the minimum carpet area should be used. In July, the ministry of urban development had announced that in order to allure foreign capital providers who do not hold long-term interests within construction assets, foreign investment up to 49 per cent should be free from condition.
As per government officials:
The Cabinet is likely to consider these recommendations soon. Apart from recommending a cut within the minimum land area required for developing residential plots to five hectares from ten hectares, it also proposes that the requirement for residential apartment complexes could be reduced to a minimum total carpet area of 20,000 square meters from 50,000 square meters of built-up area.
Additionally:
It was also proposed that the minimum capitalization for wholly-owned projects and subsidiaries along with joint ventures should be brought down from the existing $10 million to $5 million, however the entire sum should be brought in within six months of the projects commencement date.
Even though, the Ministry of Commerce and Industry is vehemently backing the proposal, it might get rejected by the government. Howbeit, if passed and constituted, it would inadvertently boost the real estate sector.
Conclusion:
Constituting the same would in turn enable realty players to raise foreign capital at competitive rates as well as reduce their dependency up on the already strained domestic financial institutions. The obscure rules and policies governing FDI has so far been keeping an entire legion of foreign investors such as private equity funds, NRI’s, etc from going ahead with their investment plans in the country. If the proposal is taken up it could inject a much needed cash reserve and stimulate the Indian real estate sector.
