Tweaked foreign equity norms will boost construction: Experts

New Delhi, Aparajita Gupta , Oct 30 – The Indian government’s decision to relax the norms for foreign equity in construction will give a major push for funds infusion in the capital-starved realty industry, notably in mid-size and small-city projects, experts feel.

Tweaked foreign equity norms will boost construction: Experts

The most significant decision, the experts said, was the reduction in the floor area — or the minimum size of a project, in terms of space — that can qualify for foreign equity.

This parameter has been eased from 50,000 sq-mts to 20,000 sq mts.

This apart, the minimum capital requirement for a project has also been lowered by half to $5 million from $10 million — a move that is especially seen as benefiting the real estate projects in smaller cities.

Relaxation in the development size will benefit Tier II and III cities where large projects typically suffer from poor demand, said Sanjay Dutt, executive managing director for South Asia for global realty consultancy Cushman & Wakefield.

This is a step that will also be beneficial for the next phase of urban development as envisioned by Prime Minister Narendra Modi under the 100 Smart Cities project, Dutt told IANS, adding the areas around dedicated industrial corridors will also gain.

Yet, he felt, the government must ensure that process of buying and approval of projects is streamlined to minimise delays and attract global funds. So far one of the main concerns has been delay in commencement and completion of projects.

According to a report prepared by the commerce ministry-promoted India Brand Equity Foundation, India’s construction sector, including townships, housing and built-up infrastructure, has attracted foreign equity worth nearly $25 billion since 2000.

Yet, by the government’s own admission, the inflows into this sector have slowed down. The sector witnessed steadily-rising foreign investment from 2006-07 to 2009-10, after which the levels of inflows have been lower, said the cabinet note.

With the latest steps, industry experts like Anuj Puri, chairman and India country head for global realty consultancy Jones Lang LaSalle, the situation is set to improve.

Puri said in the current fiscal till August, India received total foreign equity worth $17.4 billion, or 70 percent of the total inflows received during the entire 2013-14 fiscal.

But it was not the same for real estate. Its sector’s share in the total foreign equity inflows has further slipped from 5 percent in the previous year to under 3 percent as of the current fiscal until August, he said.

The government’s decision to relax rules in the construction sector literally comes in the nick of time. The easier norms will help faster completion of projects, delayed by a squeeze on funds due to elevated debt, Puri told IANS.

To justify their optimism, experts point to another clause that was approved at the meeting of the cabinet, presided over by Prime Minister Narendra Modi. This pertains to large urban centres where there is acute shortage of land.

In case of development of serviced plots, there is no condition of minimum land, said the government statement, speaking about the conditions for 100 percent foreign equity in the construction sector.

Additionally, the conditions of minimum land and minimum capital for pumping foreign equity will not apply to hotels projects, resorts, hospitals, special zones, educational institutions, old-age homes and investment by non-residents.

This apart, these conditions will also not apply where projects commit at least 30 percent of the costs to affordable housing. In other words, foreign equity of any quantum can flow in under these categories.

What we required today is injection of capital for infrastructure and development, said Anshuman Magazine, chairman of the India chapter of CBRE, another global commercial real estate services firm.

Whatever the government can do to increase the capital flow into these areas will certainly help the construction sector and the economy, Magazine said in an e-mail statement to IANS.

The real estate and infrastructure industry is starved of funds. These steps will widen the base of investors, especially mid-sized financial institutions. It will also encourage new projects in prime areas of large cities and in Tier II towns.

(Aparajita Gupta can be reached at