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Government Eases FDI Norms for Realty Sector

New Delhi: With India’s real estate industry facing a huge slowdown for last 2-3 years, the government on Tuesday relaxed foreign direct investment (FDI) norms in the construction sector by removing two major conditions related to minimum built-up area as well as capital requirement.

To boost foreign investment in the cash-starved realty sector, the government has eased rules for foreign investors to exit and repatriate their investments. It also said that each phase of the project would be considered as a separate project for the purpose of FDI policy.

Making “radical changes” in FDI regime in the construction development sector, the government said, “Conditions of area restriction of floor area of 20,000 sq meters in construction development projects and minimum capitalisation of $5 million to be brought in within the period of six months of the commencement of business, have been removed.”

Although 100 per cent foreign direct investment was allowed in townships, housing and built-up infrastructure and construction developments since 2005, the government had imposed certain conditions.

The government had relaxed the FDI norms for construction sector in October last year. Now, it has further eased the norms as realty sector is facing demand slowdown leading to liquidity crunch and delay up to 5 years in completing project.

“A foreign investor will 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,” the government said.

Moreover, the 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,” it added.

The condition of lock-in-period would not apply to hotels and tourist resorts, hospitals, special economic zones (SEZs), educational institutions, old age homes and investment by NRIs.

As FDI is not permitted in any entity which is engaged or proposes to engage in realty business, construction of farm houses and trading in transferable development rights (TDRs), the government today clarified that “earning of rent/income on lease of the property, not amounting to transfer, will not amount to real estate business”.

In the FDI policy, real estate business mean as “dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential/commercial premises, road or bridges, educational institutions, recreation facilities, city and regional level infrastructure, townships”.

The government has already permitted 100 per cent FDI under automatic route in completed projects for operation and management of townships, malls/shopping complexes and business centres.

Further relaxing the norm, it has now permitted transfer of ownership and/or control of the investee company from residents to non-residents.

However, there would be a lock-in-period of three years, calculated with reference to each tranche of FDI and transfer of immovable property or part thereof is not permitted during this period, it added.