With India now allowing 100% Foreign Direct Investment (FDI) in the construction sector, real estate private equity investment could double – and boost demand from overseas property buyers, say agents.
FDI real estate private equity, which is currently estimated from US$1billion-US$1.5billion per annum, could reach to up to US$3billion in the next few years.
“The fact that 100% FDI will now be allowed under automatic route to invest in completed assets along with relaxation of other norms is expected to increase FDI inflows significantly.”
The elimination of the three-year lock-in period is the biggest change to FDI policy. But with more projects being funded by FDI, developers will be under pressure to accelerate construction so investors can be paid.
Investors will now be permitted to exit either on completion of the project or after the completion of support infrastructure in the project, such as internal and approach roads, water supply, street lights, and sewerage.
“With the news that 100% FDI is now allowed under automatic route in completed project for operation and management of not only townships but also shopping complexes and business centres, developers will be able to sell completed malls and integrated townships to foreign investors. This will significantly increase the volume of the retail real estate business. Also, with a lot more projects qualifying under FDI funding, the refinancing business will see significant increase.”
The unit size to be considered for affordable housing has been increased from 60 square metres (carpet area) to 140 square metres (floor area), on condition that at least a quarter of the units under affordable housing should have a floor area of under 60 square metres.
With the minimum floor area requirement having been lowered from 50,000 square metres to 20,000 square metres, smaller projects will now qualify for FDI, says Mr Nair.
Developers will be exempt from restrictions in area and minimum capitalisation if they commit 30% of the project cost to affordable housing, which will increase the supply of budget housing across India.
