FDI NORMS RELIEF MAKE REAL ESTATE SECTOR OPTIMISTIC

The government has relaxed FDI norms as stated in the Union Budget which is able to conceivably double the influx of funds into the real estate sector and make the country a step nearer to NDA's poll promise of 'Housing for all by 2022'.

The government's call to relax foreign direct investment (FDI) norms in the construction industry will go protracted approach in reviving the sector. Builders and developers say the choice will definitely facilitate in bringing down the cost of construction, because it can result in the supply of low funds to the sector.

This will not only solely result in to the creation of new jobs in the industry, but also help the government achieve its poll promise of “Housing for all by 2022“, they said.

The Union government reduced the necessities of minimum built-up area to 20,000 sq meters from the existing level of 50,000 sq meters for 100% FDI in the construction of projects under automatic route.

It also reduced the need of minimum capital investment for a project to qualify for 100% FDI by 50%, to $5 million from $10 million. Apart from this, if a developer constructs affordable houses on 30% of the project area, the new norms have waived off all the necessities for 100% FDI.

These measures have the potential to more than double FDI inflow into commercial real estate, hotels, housing and townships in the next one year.

The government's call will definitely facilitate the real estate sector, but added a caveat that the government should streamline the approval processes additionally in order to make business easier. The government's call to ease funding rules for FDI within the construction sector may be a step in the right direction.

However, this was not among the big reforms needed to to attract around $1 trillion over the next five years to overhaul infrastructure like ports, airports, and highways, which might boost growth.

The government should work to introduce larger reforms which are required to make it easier to do business in India. The country's ranking has recently slipped by two points to 142 among 189 countries.

Performance falls even further when one considers two areas that are important to the real estate business coping with construction permits that weekend to 182 out of 189, and imposing contracts, ranking 186 out of 189 countries! In terms of direct support to the residential sector, availability of finance is an important area with mortgage debt in India only around 9% of GDP versus China (35%) and the UK (70%).

Buying a home is one of the best investments available and inspiring families to buy through finance offerings is a good policy. With progress on these fronts, FDI investments will naturally flow into India, attracted by the tremendous potential of the size of the population, increasing earnings and urbanization.

Apart from the financing norms, the government also set to ease the otherwise cumbersome procedure to exit a project and repatriate profits. This will also act as one more advantage for foreign investors. India attracted $1.2 billion in foreign direct investment in 2013-14, whereas the FDI inflow was $1.3 billion in the previous year in the sector.

This call has sent a positive signal to the real estate sector, which will be reflected in the coming days. The new changes can facilitate attracting money, which might revitalize the sector parched for funds. It would also increase the supply of affordable housing in the country, which is the highest priority for the new government.

100% FDI would mean that more capital will be invested in towns and cities for the development of residential and commercial spaces. The new policy announcements would enhance the general investor sentiments and expand the inflow of funds.

The decision was the much needed breather for the sector and would encourage developers to be more aggressive in the segment, whereas taking development beyond metro cities.

This would ease the burden of lending for banking and non-banking institutions, which till date are bearing the load of capital needs of the real estate sector, thereby serving other sectors grow.

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