The Telegraph
Thursday , February 27 , 2014
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Cabinet set to take a call on FDI in realty

New Delhi, Feb. 26: The cabinet will discuss this week the proposed changes in foreign direct investment rules for the realty sector. The new rules may lower the minimum built-up requirements and minimum capitalisation for realtors to help them infuse more money into the sagging housing sector.

Top officials said the cabinet note would call for halving the minimum area requirement to 5 hectares from 10 hectares. Similarly, the minimum built-up area requirement of 50,000 square metres will be relaxed for small townships with a population of less than 1 lakh. Instead, realtors will have to build estates with a minimum carpet area of 20,000 square metres to be eligible for FDI.

Realtors from now on have to work on carpet area instead of built-up area calculation as the latter often leads to consumer disputes.

Officials said with land being a scarce resource, most developers were planning small satellite townships at a distance from metro cities and these needed new norms.

The minimum capital requirement would also be halved from $10 million to $5 million for fully owned subsidiaries of foreign realtors. India allows up to 100 per cent FDI in realty, subject to riders. The funds will, however, have to be brought in within six months of the commencement of business of the company.

A minimum three-year lock-in for developers may also be relaxed to allow funds to invest in realtors, said officials.

“The changes proposed in the cabinet note, if adopted, will allow more and more players to be active partners in the FDI market,” officials said.

West Asian and South East Asian funds and realty firms are believed to be keen on tapping the Indian market. India saw FDI inflows during the first three quarters of 2013 in construction development at Rs 5,500 crore, a 25 per cent increase over the same period in 2012.

Private equity (PE) investments in Indian realty increased 13 per cent in 2013, with total inflows during the year at Rs 7,000 crore, compared with Rs 6,200 crore in 2012, a report by Cushman and Wakefield said.

Between 2000 and 2013, the realty and construction sector saw the inflow of $22.43 billion in FDI. “The FDI rule tweak could unlock more realty spaces for foreign investment and see a far higher amount of money being pumped into India,” said Amit Banerjee, an independent investment banker advising a clutch of Honk Kong and Singapore based private equity funds.