Govt May Relax FDI Norms for Realty Push

Move to boost fund flows to cash-strapped sector and bolster battered rupee

New Delhi: The government is considering sweeping changes in the foreign direct investment (FDI) Norms for the real estate sector to boost fund flows to the cash-strapped sector as well as to bolster the battered Indian currency.

The urban development ministry has suggested that real estate firms with less than 50% foreign ownership be exempted from all current restrictions, including the minimum area norms for development of projects.“Foreign investment up to 49% should be free from condition to attract foreign capital providers, which do not have long-term interest in construction assets. This will also enable real estate players to raise foreign capital at competitive rates and reduce dependency on the already strained domestic financial institutions,” said an internal document of the ministry that has been reviewed by ET.

A similar free run has been suggested for foreign investment in urban renewal and slum re-development projects while major relaxations have been proposed for foreign investors picking up over 50% stake.

Some of the proposed relaxations for such investments are reduction in the minimum land parcel size for plotted development of 5 acre (2 hectares) from 10 hectares now and permission to purchase farmland for FDI funded firms. In case of construction-development projects, the present requirement of minimum built-up area of 50,000 square meters will come down to 25,000 sq meters,

“In case these proposals materialize, it would be a much-needed shot in the arm for a sector that has the potential to create huge employment opportunities,” said Amit Bhagat, MD & CEO of ASK Realty Fund. “This will be a very positive move for attracting foreign capital to the fund starved sector. It will help in developing requisite infrastructure for retail and commercial establishments, aiding job creations,” he added.

The urban development ministry’s proposals have been sent to the department of industrial policy and promotion in the industry ministry. “The suggestions/ recommendations made should apply to the present and future investments,” the ministry has stressed in its proposal.

Besides reducing the minimum areas for plotted and construction development, the urban development ministry has suggested that the non-resident investors in a real estate company be freely allowed to sell their share to another non-resident investor.

The proposal, if accepted, would ease the liquidity problem for foreign investors as there is ambiguity at present on transfer of foreign investment made in this sector by one non-resident investor to another non-resident. ”foreign Exchange Management Act 1999, which allows transfer of shares between non-residents without any conditions should be extended to the construction development sector… this would ensure greater investor confidence,” reasoned the ministry.

The government has also suggested that foreign investors be allowed to sell underdeveloped plots. It will be necessary for the Indian company to provide the infrastructure and undertake development before occupancy as per the plans approved by state authorities.

There should not be any need for obtaining additional plots from any local body’s service agency either by the FDI investor or by the recipient Indian company having FDI should be considered on a par with other Indian-held construction development companies as the development is being undertaking by the Indian company only,” the proposal states.