Govt mulls booster shot for real estate sector, may permit 100% FDI in completed housing projects

New Delhi: In an earnest attempt to help revive an economically crucial sector in these Covid-19 unprecedented times, the government is reportedly planning to relax the foreign direct investment (FDI) rules for the realty sector and give the green signal for 100% overseas investment in completed projects. The move, if implemented, will allow real estate firms to monetise completed housing projects amid the current liquidity crunch caused by the pandemic.

Many industry experts welcome the proposed relaxation, saying it will help real estate companies to monetise their completed projects so that they could concentrate on finishing pending projects that are struck mainly because of lack of funds.

The Department for Promotion of Industry and Internal Trade (DPIIT) is weighing the options of attracting more investment in the construction sector from overseas. “There are only limited sectors where FDI norms can be further relaxed and housing is one of them,” an official with knowledge of the matter told ET.

More importantly, there will be further reforms in mining and certain other sectors where there are still some restrictions as the Centre is poised to ease processes and make it simple to invest in India to counter the coronavirus-induced economic slowdown

The DPIIT is considering seeking the Cabinet nod for easing norms to allow up to 74% FDI in defence manufacturing via the automatic route. The FDI limit in defence was hiked as part of the Atmanirbhar (self-reliant) measure and requires to be operationalised. The department will send a comprehensive press note following to the Cabinet approval. In India, FDI soared 13% to a record $49.97 billion in FY20 from $44.36 billion a year earlier.

At present, the government allows 100% FDI under the automatic route in construction-development projects — townships, residential and commercial projects, roads, bridges, hotels, resorts, hospitals, educational institutions. This is subject to conditions such as a three-year lock-in period before the initial investment can be repatriated.

“We are studying the policy carefully as the restriction is largely aimed at preventing speculation in the sector,” the financial daily quoted another person familiar with the matter as saying.

However, the Centre restricts FDI in the real estate business or construction of farmhouses. It is worth noting that construction development FDI surged to $617 million in FY20 from $213 million in FY19.

“Industry has been asking for widening the scope of FDI. Three-year lock-in period is a good enough time for the government to check for any speculation,” an expert on FDI issues told the publication.