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Govt eases FDI rules for construction sector

The Times of India:  December 04, 2014

New Delhi: The government on Wednesday notified easier FDI rules for construction sector, where 100% overseas investment is permitted, which will allow overseas investors to exit a project even before its completion.

It also said that 100% FDI will be permitted under automatic route in completed projects for operation and management of townships, malls and business centres.

A press note issued by the department of industrial policy and promotion has clarified that the three-year lock-in will no longer apply and under normal circumstances, an investor can exit on completion of the project or even after the development of trunk infrastructure, such as construction of roads, water supply and drainage.

The exit clause was seen as one of the key deterrents for overseas investors to invest in the Indian construction market. The government was keen to ease the rules for building townships, housing, built-up infrastructure and construction development projects as these are sectors with huge employment potential and boost demand for steel and cement.

As a result, it has done away with the minimum area requirement for development of serviced plots, as against 10 hectares earlier. Similarly, in case of construction development projects, the minimum built-up area requirement has been cut from 50,000 square metres to 20,000 square metres moves that real estate consultants say will result in development in central Delhi and South Mumbai where land is scarce and expensive. Given the large area requirement, FDI was largely limited to the sub-urban areas. Further, to boost low-cost housing, joint ventures and investors committing at least 30% for such projects will be exenmpted from minimum area as well as capitalisation requirements.

The press note, based on a cabinet decision, has also reduced the minimum capital requirement to $5 million, which has to be brought in within six months of commencement of the project.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.