April 04, 2013
In line with its policy to encourage low-cost
housing projects, the government is considering allowing foreign direct
investment (FDI) in such projects, subject to a host of conditions,
including a lock-in period and minimum capital requirements.
Currently, FDI is prohibited in the real estate business but 100% FDI through the automatic route is allowed in “construction development” projects (read townships and special economic zones) subject to riders.
According to sources, in a similar way, 100% FDI would be allowed in low-cost housing projects as defined by the government and subject to riders that may be slightly less stringent than those for construction development projects.
Last year, the RBI allowed external commercial borrowings up to $1 billion (aggregate) in low-cost housing projects, which it defined as those where at least 60% of the permissible FSI is reserved for units with a maximum carpet area of 60 sq m.
The ECB limit can be used for slum rehabilitation projects as well. Sources said this cap could soon be raised.
According to sources, 100% FDI in low-cost housing would be part of the upcoming revised FDI policy. The move is in sync with the government's objective of giving a boost to the slowing economy with special incentives for infrastructure and construction sectors. Increased housing construction activity helps allied sectors such as cement, steel, wood, brick, glass and furniture, creating jobs.
There is, however, a hurdle. The RBI has had reservations about allowing FDI in pure-play real estate, considering its speculative nature and consequent risks to the banking sector. It remains to be seen what stand the central bank would take, in regard to the new proposal.
The conditions the government intends to impose on FDI investors in low-cost housing projects include minimum capitalisation (say $10 million) and a lock-in period (of three years). There will also be a ban on selling undeveloped plots. Project completion within a certain time period could be made mandatory.
“We hope the relaxation (to allow FDI in affordable housing) will come soon and give a boost to the sector, substantially reduce the housing shortage and bring in renowned developers,” an official in the ministry of housing and urban poverty alleviation ministry said.
The housing finance regulator National Housing Bank (NHB) has pegged the overall market size of affordable housing at around Rs 25,000 crore. The move may encourage private developers to focus more on affordable housing projects.
Developers too feel the move will help reduce shortage and spark investor interest, besides attracting multilateral institutions like the World Bank and Asian Development Bank in affordable housing in India.
Tata Housing Development Company CEO and MD Brotin Banerjee said: “The move will bridge the huge shortage of housing in the country and attract new technologies to the housing sector. It is also likely to increase the fund flow in this area to build economical housing for the masses.”
“India holds huge a potential to attract foreign investments into real estate due to stable demand, demographic factors and the focus on affordable housing,” Banerjee added.
In 2011, the government had exempted construction-development activities in the education sector and in old-age homes, from the conditionalities in construction-development, after noting that these riders posed a constraint to FDI coming to these two segments.
Currently, FDI is prohibited in the real estate business but 100% FDI through the automatic route is allowed in “construction development” projects (read townships and special economic zones) subject to riders.
According to sources, in a similar way, 100% FDI would be allowed in low-cost housing projects as defined by the government and subject to riders that may be slightly less stringent than those for construction development projects.
Last year, the RBI allowed external commercial borrowings up to $1 billion (aggregate) in low-cost housing projects, which it defined as those where at least 60% of the permissible FSI is reserved for units with a maximum carpet area of 60 sq m.
The ECB limit can be used for slum rehabilitation projects as well. Sources said this cap could soon be raised.
According to sources, 100% FDI in low-cost housing would be part of the upcoming revised FDI policy. The move is in sync with the government's objective of giving a boost to the slowing economy with special incentives for infrastructure and construction sectors. Increased housing construction activity helps allied sectors such as cement, steel, wood, brick, glass and furniture, creating jobs.
There is, however, a hurdle. The RBI has had reservations about allowing FDI in pure-play real estate, considering its speculative nature and consequent risks to the banking sector. It remains to be seen what stand the central bank would take, in regard to the new proposal.
The conditions the government intends to impose on FDI investors in low-cost housing projects include minimum capitalisation (say $10 million) and a lock-in period (of three years). There will also be a ban on selling undeveloped plots. Project completion within a certain time period could be made mandatory.
“We hope the relaxation (to allow FDI in affordable housing) will come soon and give a boost to the sector, substantially reduce the housing shortage and bring in renowned developers,” an official in the ministry of housing and urban poverty alleviation ministry said.
The housing finance regulator National Housing Bank (NHB) has pegged the overall market size of affordable housing at around Rs 25,000 crore. The move may encourage private developers to focus more on affordable housing projects.
Developers too feel the move will help reduce shortage and spark investor interest, besides attracting multilateral institutions like the World Bank and Asian Development Bank in affordable housing in India.
Tata Housing Development Company CEO and MD Brotin Banerjee said: “The move will bridge the huge shortage of housing in the country and attract new technologies to the housing sector. It is also likely to increase the fund flow in this area to build economical housing for the masses.”
“India holds huge a potential to attract foreign investments into real estate due to stable demand, demographic factors and the focus on affordable housing,” Banerjee added.
In 2011, the government had exempted construction-development activities in the education sector and in old-age homes, from the conditionalities in construction-development, after noting that these riders posed a constraint to FDI coming to these two segments.
Source :http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=23313&cat_id=2
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