FDI Investments in Real estate sector becomes easier with policy amendments

As a step towards making real estate sector in India more open and flexible to FDI investments, the government has recently announced favorable amendments in FDI policy. This move is expected to attract large volumes of FDI into real estate going forward.

The following changes have been made to the existing policies:-

  • The minimum capital requirement of $5 million has been done away with allowing more flexibility into the system.
  • No restriction of ‘minimum floor area’ is now applicable as against the earlier constraint that compelled FDI investments to be made only in projects having a minimum floor area of 20,000 Sq. Km.

The constraints imposed pertaining to the two critical factors has been a cause of massive hindrance restricting FDI investment flow in the cash starved real estate sector in India. With the new amendments, things shall now be perceived differently and positively by the FDI’s and should induce more liquidity into the Indian property markets.

The government also stated: ‘A foreign investor will be permitted to exit and repatriate foreign investment before the completion of project under automatic route, provided that a lock-in-period of three years, calculated with reference to each tranche of foreign investment has been completed.’ To enhance flexibility, the three years lock in period for FDI investments shall no longer be applicable in case the stake in property is transferred from one non-resident to another without any repatriation of funds.

However, there is no lock in period for FDI Investments into certain sectors like hotels and resorts, hospitals, SEZs, educational institutions, old age homes and NRI investments. Mentioning the positive impact of this,  Mr. Anuj Puri, chairman & Country Head, JLL India said that ‘This will allow for greater and smoother flow of FDI into all these categories. It will encourage developers to get into SEZ assets in a bigger way, and simultaneously allow for greater NRI investments into Indian real estate.’

Certain restrictions have however been imposed and Dholera investments shall not be permitted for construction of farmhouses, trading in transferable development rights and investing in any entity that is engaged in real estate business.  The term ‘Real Estate Business’ refers to engagement in any transaction with the intention of only profit making and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.

With the positive changes, the smaller real estate projects shall also receive foreign funding which was earlier only reserved for bigger ones. The real estate sector shall also gear up and gain momentum and we are likely to see more projects meeting their delivery schedules with enhanced liquidity induced within the ecosystem.

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