Govt relaxes FDI norms for construction, real estate sectors

The Union Cabinet relaxed rules for allowing FDI in the construction sector including housing by reducing the minimum built-up area and capital requirement for foreign investment in such projects.
Govt relaxes FDI norms for construction, real estate sectors

The Union Cabinet  relaxed rules for allowing foreign direct investment (FDI) in the construction sector including housing by reducing the minimum built-up area and capital requirement for foreign investment in such projects.

The Cabinet decided to reduce the minimum built-up area requirement for FDI in construction projects 20,000 sq metres from 50,000 sq metres and lowering the need for minimum capital requirement to $5 million from $10 million.

“Subsequent tranches of FDI can be brought till the period of ten years from the commencement of the project or before its completion, whichever expires earlier,” according to an official statement issued after the cabinet meeting.

The department of industrial policy and promotion (DIPP), which is the nodal agency for FDI had made a slew of recommendations earlier this year to attract more foreign investment in construction and real estate sector which is facing money crunch since the past two years.

Between April 2000 and August 2014, construction projects, including townships and housing enlisted FDI worth $23.75 billion.

This despite the fact that 100 per cent FDI is allowed in townships, housing and built-up infrastructure and construction developments since 2005, although the government has imposed certain conditions.

Finance minister Arun Jaitley had announced while presenting the Budget 2014-15 that projects which commit at least 30 per cent of the total project cost for low cost affordable housing would be exempted from minimum built-up area and capitalisation requirements, with the condition of three year lock-in.

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, according to the statement.

The Foreign Investment Promotion Board (FIPB) can recommend to the government repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of the project, on a case-to-case basis.

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