Reforms In Real Estate – The FDI way

Foreign Direct Investment (FDI) basically is the revenue brought into the country by foreign agencies for the purpose of business or investments, through the official Foreign Investment Promotion Board (FIPB) channels. The Indian Government has allowed FDIs for several industries in the recent past. FDI in Real estate is being permitted since January 2002. Despite the fact that it is almost three years since the FDI was allowed in Real Estate, the response is not encouraging. But after the recent cabinet clearance and reforms on FDI in real estate, things have started to look up.

The Cabinet Committee on Economic Affairs liberalised rules for foreign investment in the real estate and construction sector, said a senior industry ministry official.
The move is another step to reform India's financial sector and deepen the liberalisation process which kicked off in 1991 when the country embraced free market reforms.
To start with, the 100-acre criterion for FDI in realty has been removed.
The government will shortly announce its decision on modifying FDI norms in construction sector to make them more construction-centric rather than land-centric.
Though foreign investment was allowed in the sector earlier too, too many restrictions were preventing flow of FDI.
In order to avoid speculation in real estate by foreign investors, the sale of undeveloped land has been prohibited.
Minimum area to be developed under each project would be a minimum land area of 10 hectares in the case of serviced housing plots; and 50,000 sq mts in the case of construction-development projects. In the case of combined project, any one of the above two conditions would suffice.
The investment would be subject to minimum capitalisation of $10 million for wholly owned subsidiaries and $5 million for joint ventures with Indian partners.
The funds would have to be brought in within six months of commencement of business of the company.
Also, foreign investors have been barred from selling underdeveloped plots. Only fully developed service plots can be sold.
FDI in real estate should be taken trough automatic route, not FIPB.
The government is keen on allowing FDI in the construction sector as it would not only generate employment but also spur development of urban infrastructure besides bringing in hi-tech construction technology. FDI in construction would also stimulate the steel and cement industries.
Currently, FDI is permitted only in township development and with various conditions like $10 million investment

Benefits of FDI in Real Estate
FDI in real estate can create major inflows of funds that can enhance domestic investment to achieve a higher level of real estate development. FDI can certainly bring in the funds at reasonably cheaper rates, besides new ideas and technologies, which would enhance the efficiency of the Indian construction industry. A major part of the cumbersome procedures of the government and RBI are simplified with the FDI policy. So, the impact on the real estate industry can be significant, leading to increased competition levels among the local developers, in terms of price, quality and timing. The potential of growth and contribution of the real estate industry to the GDP is tremendous in India, as compared to other countries;