Tinkering of policy hurts FDI in realty
A letter from the Agriculture Minister expressing the concern over the decline of FDI within real estate has been posted to the Prime Minister. The letter states that the tinkering of policies as well as agencies that pursue and harass entities, which receive foreign funds, is creating negative sentiments.
Since, the real estate industry has the potential to attract FDI amounting to more than USD 38 billion, the government’s policy should be stable and investor friendly, further “genuine entities” should not be subjected to “coercive and arbitrary actions”.
Earlier, with the government’s conducive tax policies the inherent growing demand of housing sector had resulted in increased interest of foreign investors within the sector. Howbeit, the frequent tinkering of policies and the midway removal of tax benefits has adversely affected the sentiments of the sector.
With the introduction of Minimum Alternative Tax (MAT) and Dividend Distribution Tax (DDT); the tax benefits offered to SEZ units were significantly marginalized. Furthermore, changing the tax laws midway affects the entire viability of the project.
Problems faced by the real estate companies that have received FDI:
The respective Government Authorities subjected the realty entities that had received FDI investments to intense scrutiny. Around eighty per cent of the developers were subjected to the above. While, violators of the law should be subjected to harsher punishment, the genuine entities should be honored and coercive and arbitrary actions should be avoided.
Taking advantage of low global interest rates:
As per the Agriculture Minister, when the global interest rates were low the country could have had accessed funds from overseas for the development of townships. Since township projects need considerable capital along with long-term debt the government could have accessed foreign debt during the period when the global interest rates were at a low.
Howbeit, only a brief window was opened for External Commercial Borrowings (ECBs) for township.
Dwindling FDI in real estate sector:
Provided the government policies are stable along with being investor friendly, the potential FDI within the real estate sector can easily exceed USD 40 billion.
As per the government data, during April 2000 and May 2013, construction development including housing, townships and built-up infrastructure, the country received FDI worth USD 22.16 billion or eleven per cent of the total FDI attracted by India during the period.
