To boost foreign investment in the cash-starved real estate sector, the Government is planning to ease Foreign Direct Investment norms in Developed Housing Projects.

Government to Ease FDI Norms For Realty Sector

The Government is reportedly preparing to soften the rules on foreign direct investment (FDI) for the real estate sector and give the green signal for 100% capital inflows in completed projects, in a major attempt to restore an economy-specific sector in these unprecedented COVID-19 times. If this is enforced, the move will allow real estate to monetise developed housing projects during the current liquidity crunch caused by the pandemic outbreak.

The proposed relaxation was accepted by many industry professionals and is intended to help real estate companies fund their completed projects to concentrate on the execution of pending projects, which are most impacted by a lack of money.

To attract additional investments to the construction sector from outside, the Department for Promotion of Industry and Internal Trade (DPIIT) evaluates options. Only a few industries can relax FDI rules in which the housing sector is one of them.

Further reforms in mining and specific other sectors will be made where some restrictions remain, as the centre will be ready to facilitate the process and enhance investments in India to address the economic slowdown caused by coronaviruses.

The DPIIT intends to seek a Cabinet Node for easing requirements so that up to 74% FDI is immediately expected to be available in defence. As part of the Atmanirbhar (self-reliant) initiative, the FDI protection cap has been increased and needs to be managed effectively. After approval by the Cabinet, the department must submit a comprehensive press release. In India, FDI grew from $44.36 billion a year earlier to a record $49.97 billion in FY20.

At present, the Government permits 100% FDI under the automatic route in construction-development projects include townships, commercial and residential projects, roads, bridges, hotels, resorts, hospitals, and educational institutions. 

This is subject to certain conditions such as a 3-year lock-in period before the initial investment can be granted. The sector has been asking for widening the scope of FDI. Three-year lock-in period is a reasonable enough time for the Government to verify any speculation.

The new changes in foreign direct investment (FDI) regime would simplify the complicated process of foreign investment in the current policy.

By: Shailaja K