Government notifies new norms for FDI in real estate, investors can now exit earlier

To help attract foreign funds in construction of townships, hospitals and hotels, the government today relaxed FDI policy for this sector by easing exit norms and reducing built-up area and capital needs. 

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

The new policy has done away with the 3-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," a DIPP circular said. 

It is to be noted here, the official statement issued after the October 29 Cabinet meeting had mentioned that the investor can exit on completion of the project or "after three years from the date of final investment", subject to development of trunk infrastructure. 

Under the new policy, the minimum floor area requirement has been reduced to 20,000 sq mt from 50,000 sq mt earlier. It also brought down the minimum capital requirement to USD 5 million from USD 10 million. 

In case of development of serviced plots, the condition of minimum land of 10 hectares has been completely removed. 

Reacting on the new policy, Chairman & Country Head of JLL India Anuj Puri said: "With the FDI policy now providing investors a much more attractive exit option...FII interest in the Indian construction sector is bound to increase". 

DLF's Executive Director (Finance) said the easing of exit norms would give flexibility to investors. 

"Smaller projects can now attract FDI with reduction in minimum built-up area requirement," he added. 

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. 

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

The measure are also likely to result in creation of much needed low cost affordable housing in the country and development of smart cities. 

Between April 2000 and August 2014, the construction sector received FDI worth USD 23.75 billion or 10 per cent of the total FDI attracted by India during the period. 

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

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