Relaxation in FDI norms for construction to boost affordable housing projects

By Reema Sharma | Last Updated: Dec 18, 2014, 09:28 AM IST

The government's decision to relax rules for FDI in the construction sector is a welcome move. The measure is expected to give respite to thousands of home buyers as well as investors, who have long been anticipating a reform in this sector.

Talking to Reema Sharma of Zee Media Group, realty developers, real estate experts and analysts shared their views on the impact of FDI relaxation in construction, expectations ahead and potential of the sector.

Excerpts

How will relaxation of FDI rules benefit customers?

Surajit Chanda, Regional Director, Shobha Developer, feels this will reduce the cost of funds for builders significantly and would, hence, lead to lower prices for end-consumers.

Expressing similar views, Naresh Bharde, Chairman & Managing Director Excellence Shelters Pvt Ltd, says that the easing of policy will bring in opportunities for cheaper capital for smaller projects as well, improving quality and delivery of low cost, affordable housing projects.

How will it benefit the builders?

The government decision will help builders to source investments from foreign entities and thus overcome the major hurdle of initial investment required to start a project, said Vishal Nahar, Director at Eiffel Developers and Realtors Ltd.

How will the relaxation in minimum built-up area help investors in the urban sector?

The minimum built-up area required to attract FDI has now been reduced from 50,000 sqm to 20,000 sqm and the decreased capital requirement of $5 million from $10 million makes investing in the Indian real estate and construction sector extremely lucrative for foreign investors, said Nahar.

Meanwhile, Chanda is of the view that the exemption of projects which commit 30 percent of their total cost to affordable housing is a measure which will give a thrust to the affordable and mid-income segments.

The three-year lock-in period will no longer apply to investors who want to exit a project. What are the advantages of this?

Chanda opined that often, due to the lock-in period, surplus funds could not be repatriated. Removal of this cap will certainly give a boost to this sector and will increase the feasibility, mainly for smaller projects, with a quick turnaround time.

Bharde, meanwhile, said that a convenient ‘easy entry and easy exit’ route is one of the major attractions for foreign investors who are currently eyeing India as an upcoming major hub for construction and real estate.

How will the easing of norms for FDI in construction promote joint ventures? How can such JVs help buyers and promoters?

Joint Ventures will ensure overall higher development and activity levels in this sector, reduce delays in project completion and improve project management. This will translate into reduced pricing and better quality standards for the customer, said Chanda.

RBI, in its latest monetary policy review, has kept key rates unchanged. How will this impact the real estate sector?

The decision to keep policy rates unchanged for the fifth time has come as a disappointment to the industry, said Chanda. Nahar, on the other hand, feels that inspite of the RBI decision, the industry is unlikely to face any negative implications because of the current buoyancy in investor sentiment.