The Government has relaxed norms for allowing Foreign Direct Investment (FDI) in the construction development sector and the minimum built-up area to attract FDi was reduced from 50,000 sq metres to 20,000 sq metres and the capital requirements was decreased from $10 million to $5 million. An investor may exit the project on completion of the project or after 3 years from the date of investment. Further, at least $5 million of the FDI needs to be brought in within six months of the commencement of the project – the date of approval of the building/ layout plan by the authority.

The cap on FDI remains unchanged and the government has clarified that 100% FDI through automatic route is allowed in the sector which includes townships, housing, commercial premises, hotels and hospitals and is not allowed in construction of farm houses and trading in transferable development rights. The permission to sell the completed units to foreign investors will help Indian developers get liquidity into the system. 100% FDI is permitted under automatic route is permitted in completed projects for operation and management  of townships, malls/ shopping complexes and business centres. For this purpose developed plots will mean plots where trunk infrastructure including water supply, street lighting, drainage and sewage are made available.

Also, ‘real estate business’ for this purpose means dealing in land and immovable property with a view to earning profit or income and does not include development of townships, construction of residential/commercial premises, roads or bridges, educational institutions, recreational facilities, city/regional level infrastructure, townships.

Following the government’s announcement, the shares of the real estate developers are up by 2-6%.