Foreign investment norms in construction further relaxed

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SME Times News Bureau | 30 Oct, 2014
Foreign investment norms in the construction sector were relaxed further Wednesday with the size of an individual project reduced to 20,000 sq mts, against 50,000 sq mts earlier, and by bringing down the minimum capital requirement by half to USD 5 million.

The decision was taken at a meeting of the federal cabinet, presided over by Prime Minister Narendra Modi, while also allowing a foreign investor to exit on the completion of a project, or after three years from the date of final investment, subject to the development of basic infrastructure.

"Investment in the construction sector has a multiplier effect on the economy by way of infrastructure creation, substantial employment generation over the entire spectrum from unskilled workers to engineers, architects, designers as well as financial and other supporting services," the cabinet note said.

"Therefore, in order to step up investment in construction development with its backward and forward linkages for many other sectors of the economy, it is felt some liberalisation and rationalisation of the foreign direct investment policy on construction development could be the necessary catalyst to give a boost to the sector."

The investments are subject to the following conditions in terms of minimum area to be developed under each project:

- In the case of development of serviced plots, no condition of minimum land

- In case of construction-development projects, a minimum floor area of 20,000 sq mts

- In case of a combination project, any one of the above-stated two conditions to be complied with.

"The investee company will be required to bring minimum foreign direct investment of $5 million within six months of commencement of the project."

In another major concession, the cabinet also decided that depending on each case, repatriation of the foreign investment in the sector, or the transfer of stake by one non-resident investor to another non-resident investor, could be permitted even before the project is completed.

But these proposals will be considered by Foreign Investment Promotion Board on case-by-case basis.

Foreign equity, however, is not permitted in an entity that is engaged or proposes to engage in real estate business, as also the construction of farm houses and trading in transfer of properties.

These measures, the official statement said, are expected to result in enhanced inflows into the construction development sector consequent to easing of sectoral conditions and clarification of terms used in the policy,"an official statement said.

"It is likely to attract investments in new areas and encourage development of plots for serviced housing given the shortage of land in and around urban agglomerations as well as the high cost of land." it added.

"The measures are also expected to result in creation of much needed low cost affordable housing in the country and development of smart cities."