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Thursday, December 04, 2014

No lock-in period of 3 years for FDI in construction: Government
Photo: The Financial Express
NEW DELHI, Dec 4, 2014: The government on Wednesday notified easier FDI rules for construction sector, which will allow overseas investors to exit a project even before its completion.

It also said 100% FDI will be permitted under automatic route in completed projects for operation and management of townships, malls and business centres. The government permits 100% FDI in construction for several years but has sought to make the rules more attractive.

A press note issued by the department of industrial policy and promotion has clarified that the three-year lock-in will no longer apply and under normal circumstances, an investor can exit on completion of the project or even after the development of trunk infrastructure, such as construction of roads, water supply and drainage.

Earlier, it had proposed that the exit will be permitted "on completion of the project or after three years from the date of final investment, subject to development of trunk infrastructure". But the rules were tweaked as the exit clause was seen as one of the key deterrents for overseas investors to invest in the Indian construction market. The government was keen to ease the rules for building townships, housing, built-up infrastructure and construction development projects as these are sectors with huge employment potential and boost demand for steel and cement.

As a result, it has done away with the minimum area requirement for development of serviced plots, as against 10 hectares earlier. Similarly, in case of construction of development projects, the minimum built-up area requirement has been cut from 50,000 square metres to 20,000 square metres, a move that real estate consultants say will result in development in central Delhi and South Mumbai where land is scarce and expensive. 

Given the large area requirement, FDI was largely limited to the sub-urban areas. Further, to boost low-cost housing, joint ventures and investors committing at least 30% of total project cost for such ventures will be exempted from minimum area as well as capitalization requirements.

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