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NEW DELHI: The government on Wednesday eased rules forforeign investment in the construction sector by allowing inflows into projects spread over a smaller area. The move may result in overseas players participating in the development of malls and office spaces in central Delhi and South Mumbai.
As an added sweetener for foreign investors, the Union cabinet also decided to ease the rules for them to exit the project and repatriate profits. For the benefit of consumers there is a clause that will make it mandatory for Indian companies with foreign funding to only sell "developed plots", which means tracts that have trunk infrastructure including roads, water supply, street lighting, drainage and sewerage.
While the government allows 100% FDI in construction, the rules related to minimum area requirement and exit of investors were hampering overseas interest, especially when the sentiment in the sector depressed.
Consultants said that the biggest change is the reduction in the construction and development requirements. The minimum floor area requirement for construction and development has been reduced from 50,000 square metres to 20,000 square meters. For "serviced plots", there is no minimum land requirement now, compared to 10 hectares earlier.
These moves will help in inner-city development. The 20,000 square metre requirement will allow investment to flow into south Mumbai or central Delhi. So far, investment was going to the outskirts as it was tough to find area to develop or construct 50,000 square metres. As a result risk profile was higher and returns were lower (for foreign investors)," said Anuj Puri, chairman and country head at JLL India.
The lower area requirement is also expected to result in more interest in smaller towns where the requirement for large top-of-the line office or residential complexes is limited. "This (decision) is a positive development. What we require is injection of capital for infrastructure and development. Whatever the government can do to increase capital flow in these areas will help the construction sector and the economy," said Anshuman Magazine, CMD at CBRE, a real estate consulting outfit.
Projects that commit at least 30% of the total cost for low cost affordable housing would be exempted from minimum built up area and capitalization requirements, finance minister Arun Jaitley had said in the budget.
The government is hoping that higher investment in the construction sector will boost demand in other sectors of the economy and has already initiated several other steps including allowing the setting up and listing of real estate investment trusts to ensure that Indian companies are not starved of funds.
"Investment in the construction development sector has a multiplier effect on the economy by way of infrastructure creation; substantial employment generation over the entire spectrum from unskilled workers to engineers, architects, designers as well as financial and other supporting services. Further, it creates demand for the products of a number of related industries including those in the manufacturing sector like cement, steel, fittings and fixtures and others. Besides its employment and income generation potential, greater investment in the sector would help to augment the available housing stock including affordable housing and built up infrastructure for different purposes," a statement said.
As an added sweetener for foreign investors, the Union cabinet also decided to ease the rules for them to exit the project and repatriate profits. For the benefit of consumers there is a clause that will make it mandatory for Indian companies with foreign funding to only sell "developed plots", which means tracts that have trunk infrastructure including roads, water supply, street lighting, drainage and sewerage.
While the government allows 100% FDI in construction, the rules related to minimum area requirement and exit of investors were hampering overseas interest, especially when the sentiment in the sector depressed.
Consultants said that the biggest change is the reduction in the construction and development requirements. The minimum floor area requirement for construction and development has been reduced from 50,000 square metres to 20,000 square meters. For "serviced plots", there is no minimum land requirement now, compared to 10 hectares earlier.
These moves will help in inner-city development. The 20,000 square metre requirement will allow investment to flow into south Mumbai or central Delhi. So far, investment was going to the outskirts as it was tough to find area to develop or construct 50,000 square metres. As a result risk profile was higher and returns were lower (for foreign investors)," said Anuj Puri, chairman and country head at JLL India.
The lower area requirement is also expected to result in more interest in smaller towns where the requirement for large top-of-the line office or residential complexes is limited. "This (decision) is a positive development. What we require is injection of capital for infrastructure and development. Whatever the government can do to increase capital flow in these areas will help the construction sector and the economy," said Anshuman Magazine, CMD at CBRE, a real estate consulting outfit.
Projects that commit at least 30% of the total cost for low cost affordable housing would be exempted from minimum built up area and capitalization requirements, finance minister Arun Jaitley had said in the budget.
The government is hoping that higher investment in the construction sector will boost demand in other sectors of the economy and has already initiated several other steps including allowing the setting up and listing of real estate investment trusts to ensure that Indian companies are not starved of funds.
"Investment in the construction development sector has a multiplier effect on the economy by way of infrastructure creation; substantial employment generation over the entire spectrum from unskilled workers to engineers, architects, designers as well as financial and other supporting services. Further, it creates demand for the products of a number of related industries including those in the manufacturing sector like cement, steel, fittings and fixtures and others. Besides its employment and income generation potential, greater investment in the sector would help to augment the available housing stock including affordable housing and built up infrastructure for different purposes," a statement said.
