Budget 2014: New Fdi Norms

To Attract Foreign Investors

Foreign Direct Investment in real
estate is a good source of funding. In
the Union Budget 2014, certain
modifications are proposed in the
current FDI norms so as to encourage it
in Indian real estate market. There are
certain conditions and norms in FDI ith
respect to area, !uilt"up area, capital
and time frame. These norms ha#e no
got regularised.
FDI got permitted first in the $ear 200%. There ha#e !een man$ pro&ects hich ha#e
!een funded through FDI. This had a significant importance in the real estate
market since 200%. 'o these norms ha#e !een eased !$ the go#ernment ith an
intention of encouraging the de#elopment of smart cities.
The re(uirement of !uilt"up area and capital conditions for FDI is now reduced
to 20000 s!" m from 50,000 sq. m and from U)D 10 million to U)D % million
respecti#el$. *nother significant change in the norms is that if an$ particular pro&ect
commits that at least #0 per cent of t$e total pro%ect cost is used for low
cost $ousing, those pro&ects are e+empted from minimum area and capitalisation
re(uirements. This is a !old step taken !$ the go#ernment to make the de#elopers
!uild more of afforda!le and lo cost housing for the so called neo"middle class
families.
,re#iousl$, ith the norms of %0,000 s(. m of !uilt"up area for all the pro&ects other
than pure residential pro&ects, de#elopers and !uilders could get foreign in#estment
onl$ to huge pro&ects. 'o rela+ing the limit of !uilt"up area ill result in the entr$
of more funding into the real estate econom$ through FDI. )imilar #ies ere
echoed !$ *shok -upta, ./D, *&nara India 0td. 1e is of the opinion that, 2FDI, not
&ust in real estate, ill enhance the Indian !usiness en#ironment in all other sectors
as ell. 3ith !etter policies and norms, FDI flo in real estate sector ill gro
manifold hich ill ultimatel$ !oost the econom$.4
*s the sector is reeling through an acute funding pressure, real estate fraternit$ is
optimistic that FDI ill gi#e much"needed fillip to the sector. 1oe#er, for foreign
pla$ers to completel$ settle in India, certain reforms are mandator$.
*dding to the list of reforms, ,radeep 5ain, chairman, ,ars#nath De#elopers 0td
sa$s, 2* proposal to cut minimum in#estment to USD 5 million from current limit of
USD 10 million ould promote small in#estors to route their in#estment through
India. )imilarl$, the lock in period should !e cut from fi#e $ears to three $ears so
that an in#estor gets an opportunit$ to e+it a pro&ect after third $ear itself.4
These change of FDI norms ill also result in timel$ completion of pro&ects. This has
!een o!ser#ed hen FDI as first alloed in 200%. The foreign in#estors ha#e a lock
in period of 6 $ears for their in#estment. )o the pressure from the foreign in#estors
on de#elopers ensures timel$ completion of the pro&ects. 'e pro&ects and schemes
planned !$ the go#ernment such as smart cities and housing for all ill !e
!enefitted ith the ne norms and standards. But the one of the ma&or
disad#antages hich is seen due to the foreign in#estment is the hike in land prices.
)o go#ernment should also make sure that the land prices ill !e in control ith
foreign in#estments in place.
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