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FDI barriers crumble


A day before Diwali, the real estate industry received a surprise gift from the Government in the form of Iiberalised FDI norms. Coming a few days after the rate-cut decision by the RBI, this additional resource is sure to provide a huge reliefto cash-starved industry. With initial days of festival period signalling a healthy trend, the major changes made in the FDI guidelines are bound to spur affordable housing activity in the country. Moreover, with developers now having the opportunity to free their capital from completed projects, they will be encouraged enough to embarkon fresh ones.

It’s no hyperbole to say that for the real estate sector in the country, Diwali dawned a day early this year! The biggest ever reforms push announced by the Government on November 10 since the opening of the sector to FDI in 2005 ushered hopes of revival of the industry struggling with demand slowdown and liquidity crunch for long. By removing all restrictions on foreign direct investment (FDI) in a real estate and construction sector, except for a three-year lock-in period for select projects, the Government certainly ensured an early, and happier, Diwali for the entire sector.

Close on the heels of the ruling party’s debacle in Bihar, the Narendra Modi Government opened up construction along with 14 other key sectors to foreign investment, eased norms for businesses and allowed the Foreign Investment Promotion Board to clear proposals up to Rs. 5,000 crore. Coming a day before the Prime Minister’s visit to the UK and to Turkey for G20 summit, the decisions were evidently rushed to help Modi reinforce his Government’s narrative on economic reforms and its intent to attract global investors. The unusual hurry was unmistakable as unlike most policy changes which are approved by the Union Cabinet, the Government chose to use a provision that allowed the PM to decide on the announcements.

“Most important is the construction sector. There has been a slowdown here. Now that interest rates have started easing, the sector will hopefully pick up.”
ARUN JAITLEY, Union Finance Minister

“This will have a huge positive impact on the housing sector as a whole but much more so on the affordable housing segment, which was so far not a beneficiary of FDI in any significant manner”.
ANUJ PURI, Chairman & Country Head, JLL India


Political imputations and uncommon hurry notwithstanding, the real estate sector can’t thank the Government enough for having injected a huge booster dose in the form of liberalised FDI.

Capture 2Realty experts, consultants and developers across the board are gung-ho about the massive positive impact the amendments will have on the cash-starved, slow-moving industry. All are echoing the optimism expressed by Finance Minister Arun Jaitley while announcing the changes.

Referring to the “outdated conditionalities” that had been done away with in 15 key sectors, Jaitley said, “Most important is the construction sector. There has been a slowdown here. Now that interest rates have started easing, the sector will hopefully pick up.”

As per the new policy, any project under construction, regardless of its size, can have access to FDI. Conditions of area restriction and minimum capitalisation have been removed. In October last year, the Government had reduced the required development size from 50,000 square metres to 20,000 square metres, and the minimum capitalisation from $10 million to $5 million. Now, both the minimum cap and area requirements have been completely done away with.

“The decision (100 pc FDI completed projects) will enable developers to free their capital in completed projects and take up new projects.”
GETAMBER ANAND, President, Credai

“FDI brings transparency in regulations, approval process and provides a single-window clearance for the project. The process has become more convenient for the realtors.”
HARESH KISHOR, Head, Operations and Business Development, KG Developers


The earlier restriction that funds had to be brought into the country within six months of the commencement of business has also been removed. “This will have a huge positive impact on the housing sector as a whole but much more so on the affordable housing segment, which was so far not a beneficiary of FDI in any significant manner,” said Anuj Puri, Chairman and Country Head, JLL India.

Capture 3A foreign investor will now be permitted to exit and repatriate foreign investment before the completion of project under automatic route, provided that a lock-in-period of three years, calculated with reference to each tranche of foreign investment has been completed. Each phase of the construction development project would be considered as a separate project for the purposes of FDI policy. Exit will, therefore, be linked to each phase.

The most significant among the amendments is the one allowing foreign players to invest in completed projects and the clarification that leasing is not “real estate business”. As per the new norms, 100 per cent FDI under automatic route is permitted in completed projects for operation and management of townships, malls! shopping complexes and business centres.

“What is important as of now is to see the implementation at micro-level. While the Central Government has eased the norms, only time
will tell how the implementation turns out at ground level.”
SANJAY LAKHOTIA, Co-Founder and Director, Aamoksh One Eighty Hospitality

“(The changes) will attract more investments into the cash-strapped sector, help the developers and buyers and boost the overall sector”.
AMAN AGARWAL, Director, KV Developers

This means that FDI is permitted in rent-yielding assets. The earlier ambiguities on whether activity of renting amounts to “real estate business” (and therefore whether prohibited) have been removed. Consequent to foreign investment, transfer of ownership and/or control of the investee company from residents to non-residents is also permitted. However, there would be a lock-in-period of three years.


The step has come in for all round applause and Getamber Anand, President of the real estate developers’ umbrella body Credai has been quoted in the media as saying, “The decision will enable developers to free their capital in completed projects and take up new projects.”

Capture 4Also under the new FDI rules, transfer of stake from one non resident to another non-resident, without repatriation of investment will neither be subject to any lock-in period nor to any Government approval.

Nonetheless, exit is permitted at any time if project or trunk infrastructure is completed before the lock-in period. Hailing the bold set of reforms, Kalpesh Maroo, Partner, BMR & Associates LLP, dubbed these as “the biggest relaxation to the FDI policy for the real estate sector since the opening up of this sector for FDI in 2005”. He said, “The policy changes, especially the clarification on leasing/renting of completed assets not constituting real estate activity is going to be a game-changer and will fuel the growing appetite in the Indian and international investment
community for investments in completed commercial buildings”.

“The construction of projects will be completed timely and buyers will get possession on time.”

“The new relaxation will give them confidence that the Government is serious about making it smooth for foreign capital to flow in the construction industry”.
ANKIT KANSAL, MD & Co-Founder, 360 Realtors

According to Sachin Sandhir, Global MD, Emerging Business, RICS, the decision to relax FDI norms by removing major bottlenecks “will definitely help the sector to push for higher growth.” These initiatives, he said, “would also drive the entry and growth of smaller development firms. Projects in semi-urban and peripheral locations of Tier-I cities or locations in Tier-II and III cities can also take off at this scale, as land prices in these regions and total capital investment requirement are relatively attractive.” Lastly, he said, “The announcement will ensure faster delivery of projects reducing cost and time overruns by development firms. This will especially help in addressing the shortage of housing within the country”.


In tune with the overall optimism, Anshuman Magazine, CMD of CBRE South Asia Pvt Ltd, was quoted in the media reports as saying, “With relaxation in minimum capitalisation, area and exit norms, we are hopeful that more foreign capital will enter India’s realty sector, particularly residential projects.” In PWC India Partner Vivek Mehra‘s view, allowing FDI in completed projects like malls is a welcome move for the sector.

Capture 5“Allowing 100 per cent FDI in completed construction projects will help the sector in liquidating their current inventories, which would fuel growth,” he opined. The developer community’s reaction to the FDI booster dose administered by the Government was no less enthusiastic.

Praveen Jain, President of the autonomous self-regulatory body Naredco (National Real Estate Development Council), called it a welcome step which is likely to go a long way in reviving the investment in the real estate sector. The Government, he said, has brought in large-scale changes by removing restriction of minimum floor area in construction development projects and minimum capitalisation, as also the entry and exit norms. “This initiative will trigger ease of doing business in India, bring more investments and boost overall sentiments,” he said.

Over and above, in Jain’s opinion, “It will have multiplier effect in terms of faster delivery of projects, a huge positive impact on affordable housing projects, mainly in Tier-II and Tier-III cities and reduction in cost of units, thereby leading to increase in demand.” Calling the amendments “a welcome move” by the Government, Pardeep Aggarwal, Chairman of realty firm Signature Global, told Realty & More that these would have a direct impact on flow of funds into the sector.

There are many projects which, he said, are stuck due to lack of liquidity. “It was difficult for the developers to raise funds as they were either not available or available at an exorbitant cost. There shall now be some activity and developers would now be able to finish their projects on time,” he added. In his opinion the restriction on entry and exit for FDI was one of the critical barriers which kept many investors away from getting into the sector. “This restriction had created a kind of doubt in the minds of these investors. With removal of such barriers, investors can now exit any project at any point of time. This is a remarkable development,” he said.

“The removal of minimum capital investment of $5 million and floor area restriction of 20,000 sq mtrs will help in enhancing returns for the investors.”
VINEET REllA, Director, SARE Homes


“Even small projects in smaller cities can now attract FDI and investors need not wait to complete three years of lock-in period to exit. We must congratulate the Government for taking such bold step.”
PRADEEP AGGARWAL, Chairman, Signature Global

Aggarwal also opined that the clarification that ‘leasing’ is not real estate business will have a “huge impact on the balance sheets of developers who otherwise wanted to sell off their completed projects and cut down their debt.” The most significant amendment, in Aggarwal’s view, is the removal of cap on project size and minimum investment. “This is going to benefit affordable housing,” he said, adding “Even small projects in smaller cities can now attract FDI and investors need not wait to complete three years of lock-in period to exit. We must congratulate the Government for taking such bold step.”

Concluding on an advisory note, the Signature Global Chairman said, “Apart from amendments, the Government should also look into streamlining the approval mechanism. There are many projects which are still awaiting many approvals to be granted. It actually delays the construction which affects input cost. A stringent approval system would further boost investors’ confidence. The Government should seriously think towards introduction of single window clearances.”

Capture 6According to Vineet Relia, Managing Director of SARE Homes, the relaxed FDI norms in construction have opened up the gates of investment for foreign entities that can invest any amount, regardless of the size of the project. “Due to the capitalisation limits earlier, mid- sized and small developers were unable to procure funding through these resources. The removal of minimum capital investment of $5 million and floor area restriction of 20,000 sq mtrs will help in enhancing returns for the investors,” he told Realty & More. Also, he said, this will result in flow of investments in affordable housing projects in Tier-I cities as well as projects in Tier-II and Tier-III cities.

In Relia’s view, since each phase of construction will now be treated as a separate project for the easy entry and exit of foreign partners, “this would, to some extent, curb the delay in completion of projects that has so far resulted in unsold inventory and will allow developers easier access to capital” Asked what more the Government could have done, SARE Homes Director responded, “We are looking forward to a positive development around the Real Estate Bill in the winter session of Parliament.” The Bill, he said, will definitely impact developers as it will bring about regulatory reforms in the sector that is presently plagued by issues of cartelisation as well as red tapism around sanctions and approvals.

In response to R&M queries on the subject, Hemant Tikoo, Chairman, Experion Developers, said, “Relaxation in minimum capitalisation, area and exit norms will be able to provide sufficient push to rejuvenate growth in the sector to a certain extent as this would make the sector reach out to more global institutional and HNI investors.” However, he said, this only pushes the investment and development side of the story whereas the sector requires is an additional thrust by policy makers around relaxed development norms and faster approval timelines and access to lucrative
financing options for the customers. “Timely delivery and affordable product offerings will bring the real push to the sector,” he said.


“Relaxation in minimum capitalisation, area and exit norms will be able to provide sufficient push to rejuvenate growth in the sector to a certain extent as this would make the sector reach out to more global institutional and HNI investors.”
HEMANT TIKOO, Chairman, Experion Developers

‘Allowing 100 per cent FDI in completed construction projects will help the sector in liquidating their current inventories, which would fuel growth”.
VIVEK MEHRA, Partner, PWC India

Capture 7Describing the removal of entry and exit barriers as “quite significant”, Tikoo said, “It opens doors for participation between small and mid-sized global institutional and HNI investors in small and mid-sized projects having leaner development timelines and achievable project horizons with visible exit to the investors.” The clarification that ‘leasing’ is not real estate business, he said, “would open doors for institutional investments in residential and commercial space leasing which was earlier confined to only IT/ ITeS space.”

Describing the relaxation of exit clause where repatriation of foreign investment after a lock-in of three years irrespective of the stage of development as the most significant, he said, “This will give a lot of confidence to foreign institutional investors who earlier saw Indian real estate market as an opaque investment where projects are riddled with land, development norms, legal and other statutory issues leading to unwarranted project delays, subsequently leading to locking-in of the capital invested and no horizon on exit. The new clause will let them repatriate the funds invested even if the project is delayed due to any reason.”

Ankit Kansal, MD and Co-Founder, 360 Realtors, was emphatic that relaxations in minimum cap/size and exit norms will give an impetus to the real-estate, as there has not been any dearth of foreign investors, just lots of caution due to the stringent FDI norms in construction earlier. “The new relaxation will give them confidence that the Government is serious about making it smooth for foreign capital to flow in the construction industry,” he said in response to a questionnaire by Realty & More.

He also said that relaxation in entry policy that earlier stated that FDI should be brought within six months of project commencement, “means that mid-way stuck projects can also get fresh foreign investments that will help them gain speed towards completion.” Kansal was not too sure if the clarification that ‘leasing’ is not real estate business can prove to be a game-changer. It may, he said, “depending upon how the foreign investors view the change.


“With relaxation in minimum capitalisation, area and exit norms, we are hopeful that more foreign capital will enter India’s realty sector,
particularly residential projects.”

“It will have multiplier effect in terms of faster delivery of projects, a huge positive impact on affordable housing projects, mainly in Tier-II
and Tier-III cities and reduction in cost of units thereby, leading to increase in demand.”
PRAVEEN JAIN, President, Naredco

Capture 8Not being allowed to invest in leasing, but to be involved in actual development for real-estate can be a bit tricky
as it means the foreign investment has a longer cycle of dependency and development roadblocks can delay actual returns.” However, he did say that by allowing FDI in completed assets, provided it is not for rental income, “the Government has given more muscle to developers to sell their developed assets to foreign investors and thus generate more revenue.”

To a question as to what he thought was the most significant amendment, Kansal replied, “The minimum capital and minimum area limits earlier restricted FDI to larger Tier-1 and Tier-2 cities. Now lowering of the limit shall attract FDI in Tier-3 cities as well, an area that has greater potential in future than the already saturating bigger cities.” In the same way, he said, doing away with minimum land restriction of 10  hectares for development of serviced plots is very significant since there is shortage of land in urban India – which sees maximum activity in real estate.

“This shall mean even smaller colonies can be developed via FDI”, he said. Concluding wistfully, Kansal remarked: “Tax relaxations can be improved to make FDI in construction more lucrative. ” Haresh Kishor, who heads Operations and Business Development at KG Developers, said the removal of minimum capitalisation and size for FDI will help the affordable housing segment the most and even the housing sector will have a positive impact as a whole.

The move will instill enough confidence in investors and realtors. It will also bring technology, experience and expertise in the country through various foreign investors, II he said. He was of the view that the doing away with entry and exit barriers “will fuel the evegrowing investment community at an international level and reduce considerable hindrances in view of lots of rules and regulations. It will boost the economy and make way for job creation in the sector.”


Regarding the clarification on leasing/renting, Kishor said it will be a game-changer for the industry. “In the long run, this will result in construction of a lot of commercial spaces which should bring down rentals and make India an attractive destination for global companies to set up offices,” he said.

Capture 6Most pertinently, Kishor told Realty & More that FDI will organise the sector which at present is only 5 per cent organised. “FDI brings transparency in regulations, approval process and provides a single-window clearance for the project. The process has become more convenient for the realtors. Land documents and records, pricing and stamp duty constituted for a large amount of discrepancy but with FDI there will be money accountability simplifying the entire process and bring more clarity for investors and realtors.” he summed up.

“For construction sector, this is certainly good news, and this should provide a push to the sector,” gushed Sanjay Lakhotia, Co-Founder and Director, Aamoksh One Eighty Hospitality. He also finds doing away with entry and exit barriers as crucial as now “there will be an option to attract more capital into the sector.” Lakhotia also agrees that the clarification on ‘leasing’ will be a game-changer for the sector.

“This is a very important announcement and should pull more investments in completed projects. This is also important for retirement living sector. Today because of initial capital requirement, customers do find it difficult to move to a retirement home,” he said. However, he finds the removal of ceiling and easy exit clause as the two significant announcements “which should also give a boost to affordable housing.”

Asked what else the Government could have done to attract FDI in the sector, Lakhotia said, “What is important as of now is to see the implementation at microlevel. While the Central Government has eased the norms, only time will tell how the implementation turns out at
ground level.”

“The announcement will ensure faster delivery of projects reducing cost and time overruns by development firms. This will especially help in addressing the shortage of housing within the country”.
SACHIN SANDHIR, Global MD, Emerging Business, RICS


“The policy changes, especially the clarification on leasing/renting of completed assets not constituting real estate activity is going to be a game-changer.”
KALPESH MAROO, Partner, BMR & Associates LLP

Hailing the far-reaching amendments, Aman Agarwal, Director, KV Developers, dubbed these as a “Diwali gift” to the sector. The move, he said, will help in developing low-cost and affordable housing in line with the Government’s vision. “Removing the caps on project size, giving greater flexibility in transfer of investments to other overseas investors and allowing investments in completed projects will attract more investments into the cash strapped sector, help the developers and buyers and boost the overall sector,” said Agarwal in response to the R&M questionnaire. “Through this mechanism the developers will get another route for funding their projects and it would award a momentum to
Indian real estate industry”, he said.

Summing up the reformed FDI scenario cryptically, Santraj kasana, CMD of Morpheus Group, said, “The construction of projects will be completed timely and buyers will get possession on time.” Also, he said, “This will have a huge positive impact on the low-cost housing segment which was so far not a beneficiary of FDI in any significant manner.”