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FDI can flow into small realty projects

Affordable housing sector, projects in smaller towns to benefit; move will lead to faster implementation of projects

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The new norms
No minimum land area requirement for service plots

Bar on on minimum floor required for FDI lowered to 20,000 sq mt

Lock-in period of three years for investments done away with

The government on Wednesday announced relaxation in foreign direct investment (FDI) norms for the real estate sector.

In a notification issued on Tuesday, the Department of Industrial Policy and Promotion (DIPP) removed the minimum land area requirement for service plots, and lowered the bar on minimum floor required for FDI. The government has also done away with the lock-in period of three years for the investments.

The government allows 100% FDI via automatic route in townships and housing. As per the revised guidelines, in case of the development of serviced plot, there will be no minimum land required. In case of construction of development project, a minimum floor area of 20,000 square metres will be required to be eligible for FDI from the current 50,000 sq mt. With this, the small-scale projects as well as the small developers will also become eligible for FDI.

The DIPP note said, "The investor will be permitted to exit on the completion of the project or after the development of trunk infrastructure like roads, water lighting, drainage and sewerage. The government may, in view of facts and circumstances of the case permit repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of the project. These proposals will be considered by the Foreign Investment Promotion Board on case-to-case basis," said the notification.

This is a major reform as earlier the original investment could not be repatriated before three years from completion of the minimum capitalisation. Experts feel the revision of the norms will lead to
faster implementation of the projects. "This would stem the entry and growth of smaller development firms. Projects in semi-urban and peripheral locations of Tier I cities or locations in Tier II and III cities can also take off at this scale as land prices in these regions and total capital investment requirement are attractive," said Sachin Sandhir, MD - South Asia, Royal Institution of Chartered Surveyors.

As per the revised guidelines, the investor will be permitted to exit on completion of the project or after three years from the date of final investment, subject to development of trunk infrastructure. The announcement will ensure faster delivery of projects reducing cost and time overruns by development firms.

"It is indeed a welcome step by the government. The sector has been reeling under an acute funding pressure. The foreign investment in real estate has also gone down in last few years. Investors were shying away due to ambiguity in rules and regulations. Also, they were not keen on locking their funds for longer period. With these reforms in place, they would now be able to manage their funds quite well. We believe affordable housing would be the biggest beneficiary of this step as funding is now allowed in projects sizing 20,000 sq mt as well," said Rohit Raj Modi, president, Credai (NCR).

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