Govt Plans FDI Boost to Reality Growth

K Ramanathan

To help the cash starved real estate sector to have more funds flow, the Government is planning to make sweeping amendments in the existing foreign direct investment (FDI) norms; which, apart from providing life support to realty sector, will also help bolster the already battered rupee value.

The urban development ministry has reportedly suggested to the Government to exempt those real estate companies, which have less than 50 % foreign ownership, from all current restrictions, including the minimum area requisite for developing a project.

"FDI up to 49% should be allowed without any restriction to attract overseas capital funds, which should not have long-term interest in construction assets. If the restrictions are relaxed, real estate players can raise foreign capital at competitive rates and make them less dependent on domestic financial institutions," a report quoting the ministry’s internal document, said.

The suggestion was also made to attract more foreign investment by relaxing norms for slum redevelopment and urban renewal projects. Those who can take over 50% stakes in such projects can avail this relaxation.

Proposals were also made to reduce the area of operation to bring in more funds from the foreign shore. For example, relaxation of projects having size of five acres instead of 10 acres has been proposed and permission to purchase of farmland for FDI funded firms.

For construction development projects, it has been suggested that the present condition of minimum built-up area of 50,000 square meters should be relaxed to 25,000 sq meters. 

"If these proposals become a reality, it will augment the growth of the sector and also help generate huge employment openings," says Ananda Mahadeva, MD of Ananda Builders in Chennai, adding, “Several small projects can be benefited as fund flows increase the possibility of project completion before due date, which will enhance the credibility of the builders.”