A change in FDI (Foreign Direct Investment) policies in Union Budget 2014 is a welcome step for the overall climate of growth in the Indian real estate market.
For the sector, a capital intensive industry, the flow of money into the system is very important. Easing FDI norms will create a way for the investors who are looking to unlock the value in land as a potent form of return.
A reduction in the size of projects eligible for FDI from 50,000 sq metres to 20,000 sq metres and having the minimum investment limit for FDI to $5 million by the government is a move in the right direction which will help increase the development of low-cost and affordable housing, furthering the government’s vision of ‘Housing for all by 2022′.
Together, this lowers the threshold for the outside investors and will also spur investment in the sector. The three-year lockin clause applicable for FDI in real estate investment in low cost affordable housing projects has also been lifted.
FDI will transform the system by introducing global best practices and makes the processes more efficient, transparent and time-bound, which is the need of the hour in the real estate sector. A report says that possible FDI in multi-brand retail would lead to increase in rentals. While consumer spending has increased, rentals continue to remain under pressure due to excessive supply .
Bangalore is set to see an increase in rentals due to low vacancy rates and over-supply, while Noida may not experience an increase in rentals due to high vacancy rates.
The report says that Mumbai and Delhi are the undisputed leaders in all forms of real estate, but due to scarcity of land, rising rentals, and capital value developers and industries are targeting Kolkata, Pune and even Tier II cities like Mysore, Chandigarh, and Jaipur.
To make malls attractive amidst an oversupply market, luxury and theme based outlets are increasingly gaining momentum.
Anil Sharma, the president of CREDAI NCR, says: “The Budget has ushered in a number of positive changes for India’s struggling real estate industry. Easing the norms in FDI will generate real development opportunities and employment in the sector. The reduction in norms will also allow smaller players with good track record to attract FDI and develop quality, affordable housing. These policies will definitely help the government realize its vision of providing housing to all by 2022. “
“Lowering the norms for FDI will encourage development of smart cities and apart from this, small developers will also be able to contribute to multidimensional growth of the Indian economy. This will also make more developers and projects eligible for FDI funding, which will ultimately contribute in mass construction of affordable homes,“ Sharma, said.
Col R S (Pickles) Sodhi, the MD of Alpha G: Corp, says: “The finance minister has proposed some pragmatic and much required changes in FDI policies for the real estate sector. Towards this end, the minimum requirement of the built-up area and capital input for FDI have been reduced from 50,000 square metres to 20,000 square metres, and from $10 million to $5 million, respectively . The proposed development of 100 smart cities as satellite towns of larger cities also offers exciting opportunities for prospective foreign investors and funds. A sum of Rs 7,060 crore has been provided in this fiscal for the purpose of these smart cities. “
“Such rational steps will allow mid-sized and professional developers better access to capital and boost affordable housing and overall development. Moreover, easier access to FDI, clarity on tax treatment, and promotion of REITs will open up new sources of capital for the real estate industry which is reeling under severe cash crunch; once this sector picks up, there will be exponential growth in employment opportunities, too. Presently, the nation urgently needs capital inflow to reduce the worrying fiscal deficit. We hope that the new government’s policies will facilitate the desired results in the near future, “ Sodhi said.
Manoj Srivastava, the COO of Homestead, says: “Reduction in the built-up area has exposed smaller properties to FDI and now more projects will be able to avail the benefit from foreign direct investment. This decision will give a big boost to the retail sector in which smaller malls will be able to get the much needed FDI, and also residential projects in Tier II cities, which are smaller in size and will be able to avail FDI benefits.“
“Haryana and Noida, in particular, have introduced small projects which have a built up area of less than 50,000 sq metres and they will now be able to avail the benefits of FDI. It will also be helpful if FDI flows into more projects and spreads the risk; this will help it exit at a faster pace as the projects are smaller in size and they will be able to finish it fast,“ Srivastava said.
The reduction in the eligibility limits has brought many projects into the ambit of FDI. Supertech Group is already in talks with various agencies and has offered three of its projects located in Gurgaon, with a combined value of nearly Rs 1,000 crore to be developed with foreign funds. The company has recently acquired land from Greater Noida authority for developing a sports city project, comprising various sports facilities like golf course, tennis centre, cricket academy, multi-purpose sports centre, etc.
R K Arora, the CMD of Supertech Limited, says: “The government has at last recognized the untapped potential of real estate sector in augmenting the economy, which is presently in a very bad shape, and realized the need for promoting this sector in all possible ways. The real estate friendly announcements made by the finance minister in his Budget, whether it is introduction of REITS or increase in income tax exemption or announcement of incentives in affordable housing sector, the message is clear that without augmenting real estate sector the economy cannot progress.“
“Among the important decisions the new government has taken in this direction is allowing relaxation in FDI limit in real estate sector by reducing the size of projects eligible from 50,000 sq metres to 20,000 sq metres and reducing investment limit to $5 million through automatic route. Reduction in the eligibility limit will not only attract more investment in real estate sector, but will bring about more transparency in transactions and will address many problems the real estate sector is facing now,“ Arora said.
David Walker, the executive director of SARE Homes, says: “The new government has provided a balanced and insightful budget, which clearly lays out a road map for development. The commitment to a stable and investor-friendly tax regime, resolving disputes of blocked projects, and various measures to simplify rules and regulations will give great confidence to investors and providers of capital, which is essential for India to achieve high growth. The introduction of REITs is also welcome, as it eliminates duplication of taxation and will lower cost of finance. This will help developers attract long-term funds from the foreign investors.“
Rakesh Yadav, the MD of Antriksh Group, says: “The government’s decision to push for FDI in realty sector is a much awaited and much-needed initiative. At a time when we were getting used to hearing about poor economic performance of the country on various fronts, this decision will boost the overall real estate sentiment, and the economy. Not just within India, but also internationally, the decision will be taken notice of and applauded. Within the next 12-24 months, international retailers will accelerate their entry strategy. As a result, developers involved in the development of shopping centres, who were badly hit since 2008, will also get a tremendous boost.“
“The finance minister has lived up to the expectations of the real estate sector, to an extent, in his current budget. Among other things that the real estate sector was looking forward to was the FDI, and the FM has shown a gleam of light for the real estate sector in his budget.
He announced promotion of FDI in real estate sector, which will definitely bring in major investment, boosting the sector. It will also bring in the competitive edge that will help deliver world-class products. Relaxation of FDI limit in real estate development under the automatic route is a clear road map for inviting investments,“ Anil Mithas, the CMD of Unnati Fortune Group, said.
Rakesh Sharma, the MD of Ideal Group, says: “This Budget will attract small foreign investors who can help in projects that are not attractive for big players but important for the average Indian homebuyers; this would also contribute to the overall infrastructure development of the country. Mid-sized and smaller developers with good track record will get access to FDI, which will help them build affordable housing in the country. Viewed in its totality, we can safely say that the Budget has given oxygen to the retail and commercial property in the country. “
“The new budgetary provisions will open up multiple opportunities in the medium and long term, as the demand for quality real estate will rise. Presently, some retailers are cash strapped and this will provide a sort of bailout option to them. The flow of FDI into the retail sector will trigger investment in front end and back end of the sector. In the front end, retail store spaces will see investments and in the back end, better-quality warehouses would be seen, “ Sanjiv Chaudhary , the MD of Swarneem Group, said.
Amit Chhabra, the CEO of Luxury Circuit, says: “For making FDI in real estate attractive, the government should remove certain strict land acquisition and time-frame clauses. As per DIPP , there is a 100% FDI allowance in construction development sector of India, which is a motivating aspect; but other clauses make it a tough deal for foreign companies to venture here as it is difficult to manage things that are time-bound and delays cannot be afforded by everyone, especially people venturing into India.“
Pankaj Bansal, the director of M3M, says: “The industry, which has been reeling under the twin impact of slowdown in demand and high interest rates, has a got a number of positives from the Budget including clarification on tax status for REITS, allocation of Rs 7,060 crore for construction of 100 smart cities, tax sops on purchase of houses, and easing of norms governing FDI flow into the sector. The easing of FDI norms is a clear invitation to overseas investors, including cash-rich PIOs, to invest in this promising sector. With the government trying to introduce developerand buyer-friendly policies, the outlook for the real estate sector in 2014 looks very promising.“
Dujender Bhardwaj, the executive director of ABCZ Builders, says: “In Budget 2014-15, the decision by the government to ease up FDI norms in the sector is possibly the most far-reaching economic policy. This step will boost investments in the construction industry, and make it an attractive sector for domestic and foreign investors and developers.
With regard to townships, housing development of projects under mechanical route was the first step towards promoting the participation of the foreign investors in real estate.“ [FAST FACT] A REDUCTION IN THE SIZE OF PROJECTS ELIGIBLE FOR FDI FROM 50,000 SQ METRES TO 20,000 SQ METRES AND HALVING THE MINIMUM INVESTMENT LIMIT FOR FDI TO $5 MILLION WILL BRING IN THE MUCH NEEDED CAPITAL Pics: Deepak Sharma QUICK BITES THE THREE-YEAR LOCK-IN CLAUSE APPLICABLE FOR FDI IN REAL ESTATE INVESTMENT IN LOW COST AFFORDABLE HOUSING PROJECTS HAS ALSO BEEN LIFTED `THE REDUCTION IN NORMS WILL ALSO ALLOW SMALLER PLAYERS WITH GOOD TRACK RECORD TO ATTRACT FDI AND DEVELOP QUALITY, AFFORDABLE HOUSING. THESE POLICIES WILL DEFINITELY HELP THE GOVERNMENT REALIZE ITS VISION OF PROVIDING HOUSING TO ALL BY 2022′
Source: Times of India