Plan to ease FDI in housing

Plan to ease FDI in housing
Hindustan Times Business, February 13, 2009, Page 25

Cabinet proposed to relax conditions linked to size, built-up area

While cash-strapped builders are moving towards affordable housing as a practical means to grow business, they may get more elbow room soon. The cabinet appears set to liberalise the flow of foreign direct investment (FDI) in the real estate sector. As much as 100 per cent FDI is allowed but only in projects.

The commerce and industry has moved a cabinet note, copy of which is available with Hindustan Times, to reduce the minimum area for a project to be for FDI from the current 10 hectares (25 acres) to 10 acres for development of serviced housing plots.

The proposal also envisages the reduction in minimum built-up area for FDI to 10,000 square metres from the present 50,000 sq mts of built-up area.

Besides, housing the benefits of this policy would also flow to projects related to hotels, hospitals, family entertainment centres, cineplexes and multiplexes.

In the case of mixed development projects involving the hotel and tourism sectors, the new policy proposal stipulates that at least 50 per cent of the total built-up area be occupied by hotel and tourism related activities and that a minimum of 20 per cent of the total built-up area of a project is used for construction of hotel rooms.

Explaining the rationale, the note said that under the current guidelines, developing serviced plots or built-up areas in small cities and towns is not considered economically viable.

“The minimum area requirement as of now is viewed as a deterrent for infusing FDI into companies desirous of undertaking small sized construction projects. The new FDI proposals are aimed at encouraging FDI into smaller projects,” said the cabinet note.

The current policy permits FDI up to 100 per cent on the automatic route in tourism related industry, hotels and hospitals, when they are taken as stand-alone projects. However, for projects planned as a mix of commercial premises, shopping malls, hotels etc, though FDI is permitted up to 100 per cent on the automatic route, there are conditions linked to capital, minimum area and a lock-in period.