Real Estate India

Real estate shares gain as government eases FDI norms

The real estate sector is likely to get some relief from the easing of foreign direct investment (FDI) conditions including limitations on capital, minimum area and lock-in period in construction development.

Among the biggest reforms is that FDI can now flow in even after completion of projects. So far, FDI was allowed only in greenfield (new) residential projects.

The government has also done away with clauses linked to minimum area required and lock-in period of three years for a construction project with foreign investment in it.

According to analysts, relaxation in FDI conditions is expected to benefit most big developers including DLF, Unitech, Sobha, and others.

“It is a great move. More money will flow into residential developers. Instead of land banking, companies can monetise completed projects,” said Rajeev Talwar, executive director at DLF, the country’s largest developer.

DLF is in the process of selling stake in a company, which owns some of its commercial projects. The move is aimed at easing debt.

“There is stress in the balance sheet of real estate developers and they are borrowing at high interest costs. If a third party brings in money in completed projects and gives them an exit, it will give them more staying power and a lot of avenues, which will ease stress in their balance sheets,” said J C Sharma, vice-chairman at Sobha, a Bengaluru-based property developer.

In a set of reforms announced last December, the Department of Industrial Policy & Promotion (DIPP) had said foreign developers would now be allowed to exit a project only after its completion or after completing basic infrastructure such as roads, water supply, street lighting, drainage and sewage.

DIPP also reduced the minimum area requirements. Unlike the previous policy, foreign real estate developers can now invest in construction development projects having a minimum floor area of 20,000 square metres. Earlier, the requirement was 50,000 sq mts of built-up area. Similarly, the capital requirement was brought down from $10 million to $5 million.

“If exiting investors find an exit, new international money will come into real estate. The government should put only one condition – foreign money should not come only to buy and sell land, and go back,” said Sunil Rohokale, managing director, ASK Investment Holdings, a Mumbai-based fund manager.

However, Amit Goenka, managing director and executive officer at Nisus Finance Services, believes the current reforms could push up asset prices. “After international investors came in, the valuation of commercial assets went up. The same might happen in residential properties,” said Goenka.

“The significant reforms announced today can be said to be the biggest relaxation to the FDI policy for the real estate sector since the opening up of this sector for FDI in 2005,’’ according to Kalpesh Maroo, Partner, BMR & Associates LLP.  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, said Maroo.


  • Minimum area (20,000 sq metre) and minimum capitalisation (US$ 5 million) removed
  • Each phase of the construction development project will be considered a separate project; exit to be linked to each phase
  • 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 has been completed
  • No lock-in for transfer of stake from one non-resident to another non-resident
  • Leasing will not be counted as real estate business
  • 100% FDI under automatic route is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres

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