Modi government relaxes FDI rules for investment in real estate sector

Capital requirements for real estate firms

With its emphasis on attracting Foreign Direct Investors (FDIs) to invest in India’s real estate, Narendra Modi-led government is softening the rules and regulations for foreign direct investment in construction and housing sector in a big way.

The new central government norms are expected to allure the FDI inflow in the country. The relaxed rules pertain to the lowering the minimum built-up area and capital requirements for real estate firms. It is expected that the relaxation in the rules and regulations will attract investments in the sluggish real estate sector. The Union cabinet resolved to lower the minimum built-up area requirement for FDI in construction projects to 20,000 square meters. Earlier, the minimum built-up requirement was 50,000 square meters . Besides, the minimum capital requirement has been reduced from $10 million to $5 million, an official statement after the meeting said. So far, 100 per cent FDI was permitted in realty with stringent terms and conditions, which included a lock-in period of three years, during which the investment could not be repatriated.

It is expected that the lowering of minimum requirement for built-up area and capital may enable the Modi government to fulfill its promise to build 100 smart cities within next six years. The statement issued to the newsmen said that the funds will have to be fetched in six months soon after the beginning of the residential project. “The investor will be permitted to exit on completion of the project, or after three years from the date of final investment, subject to the development of trunk infrastructure,” the statement said.

There are plans by the government to permit repatriation of FDI, or the transfer of stake by one non-resident investor to another even before the completion of the project. The government may authorize the Foreign Investment Promotion Board to consider these proposals on a case-to-case basis.

Reacting to the fallout of the relaxation of rules for FDI, Akash Gupta, executive director of Price Waterhouse Cooper told a newspaper that the new rules would boost the development of smaller projects in urban areas, since the availability of land in metropolitan cities is low. Besides, the smaller projects could be expedited faster. He further said that the relaxed rules would attract increased funds into the real estate sector.

The move is also aimed at inducing investments in unchartered territories and boost development of affordable housing and construction of smart cities across the nation. It will facilitate the realization of government’s vision of housing for all.