Govt relaxes FDI rules in construction sector
The government on Wednesday relaxed norms for foreign direct investments in the construction and housing sector, slashing the minimum capital and built-up area requirements for projects, to help bring in fresh funds to the cash-strapped sector.
The Cabinet in its meeting decided to reduce the minimum built-up area from 50,000 sq metres to 20,000 sq metres and halved the minimum capital requirement from $10 million (Rs. 62 crore).
Further, to accelerate low-cost housing projects and aid development of 100 smart cities as envisaged by the Narendra Modi-led government, the Cabinet exempted projects that commit at least 30% of the total cost to affordable homes, from these requirements.
“These measures are expected to result in enhanced inflows into construction,” the official statement said. “It is likely to attract investments in new areas and encourage development of plots for serviced housing given the shortage of land in and around urban agglomerations as well as high cost of land. The measure is also expected to result in creation of low-cost housing in the country and development of smart cities.”
“The government has taken a very sensible and practical decision... over a period of time, FDI inflows in this sector will go up,” said Vinayak Chatterjee, CMD, Feedback Infrastructure Services.
Between April 2000 and August 2014, construction development including townships, housing and built-up infrastructure, received FDI worth $23.75 billion (`1,47,250 crore), about 10% of India’s total FDI inflows during that period. However, the economic slowdown hit the sector and in 2013-14, it got just $1.2 billion, 8% down from 2012-13.
Though 100% FDI was allowed in the sector since 2005 through the automatic route, there were a number of stringent conditions including a three-year lock-in that has proved to be a roadblock, especially when the economy was sluggish. Although the lock-in period has not been reduced, foreign investors have been permitted to exit on project completion or 3 years from the date of final investment subject to the development of trunk infrastructure.
The new rules will encourage development of smaller projects, especially in urban areas, where the availability of land is limited, said Akash Gupt, executive director at PWC.