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.

Housing Mission named after Sardar Patel

The ambitious urban housing mission to ensure housing for all by 2022 will be soon launched and will be named after Sardar Patel, said Minister of Housing and Urban Poverty Alleviation M. Venkaiah Naidu. The government is taking many steps to convert the vision of housing for all by 2020 to reality and to boost the affordable housing. The government will give priority status to affordable housing. Since the vision of housing for all by 2022 is to be realized, hence the government will streamline the approval process and also reduces the total cost of ownership for the end user of affordable housing on an urgent basis.

Addressing a press conference to present the vision of the central government for the country, Minister of Housing and Urban Poverty Alleviation M. Venkaiah Naidu said, “under the Sardar Patel Urban Housing Mission, 30 million houses will be built by 2022, mostly for the economically weaker sections and low income groups, through public-private-partnership, interest subsidy and increased flow of resources to the housing sector,” Naidu said. The minister made this announcement while speaking at the ‘World Habitat Day – Voices from Slums’ programme here

Naidu said an investment of about Rs 50 lakh crore would be required over the next few years for various initiatives such as housing for all (Rs 22.50 lakh crore), urban infrastructure development (Rs 16.50 lakh crore), urban sanitation (Rs 62,000 crore), and building smart cities. “The Government is focusing on ‘in-situ’ development of slums by encouraging vertical construction,” he added. The central government will remove major bottlenecks like land acquisitions and government clearance for the real estate sector, especially affordable housing projects. The Modi government wants everyone in the country to have a roof over head and hence no efforts will be spared to realize the dream of the development of affordable housing for all countrymen, said the minister.

The Reserve Bank of India (RBI) has called upon banks to bring in more financial innovation into home loan products by linking such loans to deposits. According to R Gandhi, Deputy Governor, RBI, “Savings can be induced to generate savings balance by way of monthly or periodic deposits. This will serve as a track record for future home loan products and once it reaches a certain balance, the financial institution can consider sanctioning the home loan with the balance in the account acting as collateral.”

Gandhi said the RBI will also periodically review the definition of affordable housing, taking inflation into account. Further, he mentioned the need to internalise the credit risk originating in the housing sector, particularly the low-ticket housing segment, through proper insurance schemes for banks and other institutions.

Gandhi asked various stakeholders to ensure timely completion and delivery of projects without escalating the costs. In addition, he highlighted the need to develop an elaborate system for collecting data on real estate and housing activity to facilitate informed policy decisions.

Amid demands from the real estate industry with regard to funding from banks, Gandhi also asked them to moderate their expectations as banks are ultimately the trustees of public money and it needs to be used efficiently for all sectors. On differential licensing, Gandhi said the central bank intends to issue the final guidelines during this financial year after analysing comments and suggestions invited from various stakeholders. Asked if state-owned India Post will apply for a banking licence, he said the Government has to give its approval and only then can it apply to the RBI.