Saturday, 21 November 2015

FDI norms: Good news for construction sector

The government has eased norms governing FDI in the construction sector, paving the way for greater development, especially in the affordable homes segment. This move will enable more funds for developers who will be able to invest in more green field projects. The increased construction activity bodes well for the economy too.

There is some good news for the construction sector. The government announced major foreign direct investment (FDI) reforms easing norms across 15 sectors including defence, banking, construction, single brand retail and civil aviation. The move is aimed at boosting the investment environment and bringing in more foreign investments. This is one of the major initiatives of the government to spur foreign investments.

These reforms will ease, rationalise and simplify the process of foreign investments. They will put more FDI proposals on the automatic route. The easing of foreign investment norms in construction will facilitate the construction of 50 million houses for the economically weaker sections.

The construction sector will be a major beneficiary as radical changes in FDI norms have been brought in to boost the demand for steel and cement, and spur economic activity, ultimately with the aim of creating 50 million affordable houses.

Restrictions eased, Floor area, capital: The conditions of restriction on floor area to 20,000 sq.mts in construction development projects and a minimum capitalisation of USD 5 million to be brought in within a period of six months of the commencement of business have been removed.

Repatriation, lock-in: Now, foreign investors have been allowed to exit and repatriate their investments under the automatic route before the completion of the project provided they complete a lock-in period of three years. These new FDI norms are expected to boost foreign investments in the housing sector, especially the affordable housing segment.

There will now be no lock-in period for FDI investments in hotels and resorts, hospitals, Special Economic Zones (SEZs), educational institutions, homes for senior citizens and NRI investments. Each phase of the construction development project will be considered as a separate project for the purposes of the FDI Policy.

A foreign investor will be permitted to exit and repatriate foreign investments before the completion of the project under the automatic route, provided that a lock-in period of three years, calculated with reference to each tranche of foreign investment, has been completed.

Further, transfer of stake from one non-resident to another non-resident without repatriation of investments will neither be subject to a lock-in period nor to any government approval. Nonetheless, exit is permitted at any time if a project or trunk infrastructure is completed before the lock-in period.

Redefining Real Estate: 'Real estate business' will mean "dealing in land and immovable property with a view to earning profits there from and does not include development of townships, construction of residential and commercial premises, roads or bridges, educational institutions, recreational facilities, and city and regional level infrastructure". Further, earning rent on lease of property, not amounting to transfer, will not amount to 'real estate business'.

Invest Smart Inflow of funds: As such, a lot of funds will flow into the construction sector, which will boost the overall economy and provide jobs. This will also improve liquidity for developers. The move will generate a lot of interest among foreign equity players. They will look at investing in real estate here for the development of residential and commercial buildings. The removal of the restriction on the minimum development area will not only boost affordable housing but inner-city development too.

The move will improve the liquidity situation in the real estate and construction sector. It will revitalize projects that could not obtain capital due to conditions applicable to FDI. FDI, however, will not be permitted in construction of farm houses, trading in transferable development rights (TDRs), and dealing in land or immovable property.

Source: PropertyatNeoDevelopers.Wordpress.Com

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