Realty may see no FDI lock-in

NEW DELHI: The commerce ministry has moved a proposal to
remove the condition of the minimum lock-in period for repatriation
of FDI in construction industry. According to a note circulated among
pertinent ministries for their comments, the move is aimed at further
easing FDI flow in construction of housing projects, hotels and townships etc.

The proposal is to remove the clause that bars such investors from
repatriating their investments before three years from completion
of minimum capitalisation of a project. The government had put
the lock-in clause while allowing 100% FDI in the sector in 2005.

The Press Note 2, which had notified permission for 100% FDI,
however, said an investor could be permitted to exit earlier with
prior approval of the FIPB.

The commerce ministry’s proposal is expected to
spur overseas funds flow into real estate and infrastructure
projects. Both these areas are experiencing funds crunch
and many housing projects have either stalled or failed to
take off as investors closed their purse-strings in the wake
of the slowdown.

A revival in this sector is expected to have a multiplier
effect on the economy and create jobs for not only
unskilled and skilled workers such as labourers and
artisans but also for engineers and architects etc.
who are involved in developing real estate projects.

A resumption of construction development is also
expected to boost manufacturing sector by raising
demand for such items as steel and cement.

At present, 100% FDI is allowed in the sector under
the automatic route in townships, housing, built-up
infrastructure and construction-development projects
that include housing and commercial premises, hotels,
resorts, hospitals, educational institutions, recreational facilities,
city and regional level infrastructure.

The FDI permision is subject to a minimum capitalization of $10 million
for wholly-owned subsidiaries and $5 million for joint ventures with
Indian partners. The foreign investor has to bring in the money
within six months of setting shop here. Besides, norms also
stipulate that at least half of the project must be developed
within a period of five years from the date of obtaining all
statutory clearances. An investor is also not allowed to
sell undeveloped plots.

Projects with FDI also need to adhere to some other
conditions. For serviced housing plots, the project has
to be spread over a minimum land area of 10 hectares.