India eases FDI rules for construction sector

Aimed at attracting foreign investment into the realty sector, government on Wednesday relaxed rules for FDI in the construction sector by reducing minimum built-up area as well as capital requirement and easing the exit norms.

The revised norms relating to Construction Development Sector, which were earlier approved by the Cabinet, have been notified the Department of Industrial Policy and Promotion (DIPP). India allows 100 per cent FDI in the sector through automatic route.

In view of depleting FDI inflow in construction and real estate sector in last couple of years, the government has reduced the minimum floor area to 20,000 sq mt from the earlier 50,000 sq mt. It also brought down the minimum capital requirement to$ 5 million from $10 million.

In case of development of serviced plots, the condition of minimum land of 10 hectares has been completely removed, said the Consolidated FDI Policy Circular 2014.

Although 100 per cent foreign direct investment was allowed in townships, housing and built-up infrastructure and construction developments since 2005, the government had imposed certain conditions.

The government expects the new measures would result in enhanced inflows into the construction development sector.

The sector is also 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 the high cost of land.

The measures are also likely to result in creation of much needed low cost affordable housing in the country and development of smart cities. The new policy has also done away with the 2-year lock-in period for repatriation of investment.

"The investor will be permitted to exit on completion of the project or after development of trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage," the circular said.

Earlier the government had said the relaxation was necessary as FDI inflows in the sector, which witnessed a steady rise during 2006-07 and 2009-10, have started declining.

Between April 2000 and August 2014, the construction sector received FDI worth $ 23.75 billion or 10 per cent of the total FDI attracted by India during the period. The revised policy is in line with the Budget 2014-15 announcement.

To boost the development of affordable homes, government has exempted the conditions of minimum floor area as well as capital requirement if an investee/joint venture companies commit at least 30 per cent of the total project cost for low-cost housing.

The circular further said the commencement of the project will be the date of approval of the building plan/lay out plan by the relevant statutory authority. Subsequent tranches of FDI can be brought till the period of ten years from the commencement of the project or before the completion of the project, whichever expires earlier.

It also said the government may permit repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of project.  These proposals will be considered by FIPB on case to case basis.

Further, the project should conform to the applicable norms and standards, including land use requirements and provision of community amenities and common facilities. The government has also clearly defined 'developed plots', 'Floor area' and 'real estate business' to remove any kind of ambiguities.

The circular also clarified that FDI is not permitted in an entity which is engaged or proposes to engage in real estate business, construction of farm houses and trading in transferable development rights (TDRs).

Also, 100 per cent FDI under automatic route is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres.