Introduction

 The investment in construction and real estate sector has a multiplier effect on the economy by way of infrastructure creation and employment generation. Between April 2000 and August 2014, the construction sector received FDI worth USD 23.75 billion or 10 per cent of the total FDI attracted by India during the period. FDI in Construction Sector has seen a fall in the last couple of years. In view of depleting FDI inflow in construction and real estate sector, the Cabinet decided to relax the conditions for investment in Construction Development Sector. Hence it approved amendments in the FDI Policy in construction development sector on 29th October, 2014. The amendments were notified through Press Note no. 10 (2014 Series) dated 03rd December, 2014. These amendments are in line with new Government’s vision to establish 100 new cities to reduce the burden on metro cities.

Amendments

• Minimum Area to be developed
  • Reduction of minimum floor area from 50,000 sq. mts to 20,000 sq. mts. in case of construction development project.
  • In case of development of serviced plots, the condition of minimum land of 10 hectares has been completely removed. The term “serviced housing plots” has been revised to “serviced plots”, thereby allowing companies to develop serviced commercial plots as well.
  • In case of combination project, the need to have a minimum floor area of 50,000 sq.  mts  or  10  hectares  has  been  removed.  No  minimum  area  condition prescribed in case of combination projects

• Minimum Capitalization
  • The requirement of minimum capitalisation which was earlier USD 10 million in case of wholly owned subsidiaries and USD 5 million in case of joint ventures, has been reduced to USD 5 Million.
  • This condition is required to be complied within a period of 6 (six) months from the date of commencement of the project.
  • The date of commencement of project which was not defined earlier has now been defined as the date of approval of the building/ lay out plan by the relevant statutory authority.
  • It has also been added that subsequent tranches of FDI can be brought till the period of 10 years from the commencement of the project or before the completion of the project, whichever is earlier.

• Affordable Housing
  • Affordable Housing Project has been defined as a project which is using atleast 40% of the FAR/ FSI for dwelling unit of floor area of not more than 140 sq. mts. Out of the total FAR/FSI reserved for Affordable Housing, atleast 1/4th should be for houses of floor area of 60 sq. mts or less.
  • To  boost  the  development  of  affordable  homes,  the  Cabinet  exempted  the conditions of minimum floor area as well as minimum capital requirement if an investee/joint venture companies commit at least 30 per cent of the total project cost for low-cost affordable housing.

• Lock-in Period of investment
  • The Cabinet has done away with the 3-year lock-in period.
  • It has permitted foreign investors to exit on completion of project or after the development of trunk infrastructure i.e. roads, water supply, street lightening, drainage and sewerage.
  • The restriction on the transfer of shares from one non-resident to another non- resident and repatriation (in any) involved therein, before the completion of the project  has  been  removed.  Now,  one  non-resident  investor  may  transfer  his stake to another non-resident investor, before the completion of the project, subject to prior approval of the government through FIPB

• Other relaxations
  • The condition that atleast 50% of the project must be developed within a period of 5 years from the Project Commencement date has been waived.
  • Now, 100% FDI under the automatic route is permitted in completed projects for  operation  and management of  townships, malls/shopping complexes  and business centers.
  • The Investor responsibilities with relation to development of infrastructure like roads,   water   supply,   street   lighting,   drainage,   sewerage,   etc.,   obtaining completion certificate have been removed.

 Conclusion

 These measures are expected to result in enhanced inflows into the construction development sector. It is likely to attract investments in new areas and encourage development of plots for serviced housing given the shortage of land in and around urban agglomerations as well as the high cost of land. Enhancement of the affordable housing stock is an urgent need in order to stem the proliferation of slums in and around the cities. These measures are also expected to result in creation of much needed low cost affordable housing in the country and development of smart cities.