Thursday, October 30, 2014

Easing of construction #FDI by government is positive;CREDAI

Union Cabinet has eased foreign direct investment norms in India’s construction sector.The built-up area requirement for foreign direct investment (FDI) in construction projects has been reduced to 20,000 square metres from 50,000 square metres.The minimum capital requirement has also been reduced to $5 million from $10 million.The investors are permitted to exit on completion of the project or after three years from the date of final investment, subject to development of trunk infrastructure.Realty stock prices yesterday had zoomed up by nearly 9% due to easing of construction FDI by the Government.

Response from Mr Suresh Hari,Secretary, CREDAI Bengaluru

The cost of funds become expensive now. The funding from banks and other financial institutions have become slow, and banks don’t fully invest in real estate. They don’t come forward to invest in developers fully. Borrowing from other sources come at a higher cost. Availability of funds at a good price is a big challenge. Now the Government has relaxed FDI to include smaller projects also. This will kickstart economic activity in real estate sector in a bigger way and funds will be available for many developers. Real estate will be much more attractive for investment. This applies to all aspects of realty business.

The cost of funds will be more competitive. The bottomline of listed real estate companies will go up because their cost of investment will be competitive.

Till now, investment on office spaces and malls was only made in city outskirts, foreign investment was possible only into projects spread over a larger area. By easing rules for FDI into projects spread over a smaller area, the Government has opened up avenues for development opportunities within city limits. The 20,000-sq-metre requirement will now open up investment opportunities for those looking at smaller projects inside city limits.

Also, this move will also result in investor interest in smaller cities where the demand is more for smaller office or retail spaces.

Response from Mr.Suresh Kris, CFO, Brigade Enterprises Ltd.

The relaxed norms for 100 percent FDI in construction is a welcome move for the real estate industry which is cash-strapped. For developers like Brigade group, who have small land parcels which did not qualify for foreign investment till now, would benefit from this move.

With this notification, foreign investors, who were not keen to invest in larger projects, may now start investing in smaller projects.

The notification would also open up demand for land where development of less than 50,000 sq metre only is possible. It is not just the residential segment which would benefit. The relaxed FDI norms would also see investment flowing into commercial and retail spaces, and also some of the mall management companies would stand to benefit.

Doing away with the clause of 50% development to be done in 5 years from the date of approval and restriction to only a three-year lock in period will give the existing foreign investors a lot of room to exit current investments. They can now re-jig their portfolio, and many developers - small and big - would benefit from such an exercise. All these are positives that we have been awaiting for a long time.