The latest reforms in the FDI policy have brought a ray of hope for the grim real estate market. It will not only attract foreign investments to the sector, but also allow development of affordable housing.
The central government recently eased Foreign Direct Investment (FDI) norms in order to boost businesses in India. However, the move is touted to be a game changer for the Housing for All mission. Increased foreign investments and enhanced liquidity of developers will aid development of affordable homes in the country.
Expressing delight, Aman Agarwal, Director, KV Developers reiterates, “The move to relax the FDI limit will help in developing low-cost and affordable housing. This is exactly in line with the government’s vision of providing housing to all.”
How will FDI ensure affordability?
Removing caps on project size, giving greater flexibility to transfer investments to other overseas investors and allowing investments in completed projects will attract more investments into the cash-strapped real estate sector in India. This will enhance the liquidity of developers who are currently not able to complete projects due to lack of funds. Easy availability of additional funds will ensure timely completion and hence, allow developers to avoid time-related cost escalations.
Praveen Jain, President, National Real Estate Development Council (NAREDCO) says, “At present, the Indian real estate sector is confronting major challenges, especially in the form of paucity of funds and regulatory bottlenecks. This initiative will trigger ease of doing business in India, bring more investments and boost overall sentiments. It will have a multiplier effect in terms of faster delivery of projects. This will have a massive impact on affordable housing projects, mainly in tier II and tier III cities. Reduction in per unit cost will thereby lead to increase in housing demand.”
Impact on foreign investors
The policy will not only trigger faster completion of projects stagnated in the past, but will also allow easier and beneficial investments by foreign stakeholders. Vineet Relia, Managing Director, SARE Homes explains, “Provision for foreign investors to invest in phase-wise development of projects and the ability to exit and repatriate investments is a strategic change for the sector where most projects get stuck owing to government approvals and funding. This would also bring down the investment window for projects. The removal of minimum capital investment of $5 million and floor area restriction of 20,000 sq mtrs will help in enhancing the return profile for the investors. This development has also provided clarity of FDI in Greenfield projects where a foreign investor can now partner with an existing Indian entity and exit the project after a minimum of three year lock-in period.”
Simply, the changes brought in will enhance investor’s interest in Indian realty, which was dampened due to various regulatory bottlenecks.