Govt may relax FDI norms in realty

Real estate monitor
The government department responsible for the promotion of industry is proposing easier rules to allow overseas investors to be part of smaller real estate projects and lower capitalisation norms for those which involve facilities in hospitality or tourism sector.

The department of industrial policy & promotion, which handles the FDI policy, in a note drafted for the Cabinet Committee on Economic Affairs, has said that FDI should be allowed to flow into realty projects even if the area covered is only 10 acres.

As of now, FDI is allowed in realty projects only if the minimum area covered is 25 acres. The move will help realty projects in metros like Mumbai, Delhi, Bangalore, Chennai and Hyderabad to attract FDI. Realty players feel that it is not possible to find 25 acres of land in these cities to make their projects comply with Press Note 2 of 2005, which defines guidelines for permitting FDI in this sector.

The industry is keen on business in the metros, as it attracts high-profile customers, but wants FDI to be allowed since the cost of land in these cities is high, making them expensive.

The DIPP has also proposed that the minimum capitalisation norms specified in Press Note 2 can be waived in the case of projects, which involve hospitality and tourism facilities, such as hotels, restaurants or entertainment facilities meant for tourists.

Press Note 5 specifies that minimum capitalisation should be $5 million for permitting FDI in realty projects, which involve an Indian partner. In case the project is implemented by a fully-owned subsidiary of an overseas firm, the minimum capitalisation specified is $10 million.

The waiver would be available in case 50% of the built-up area in a project is devoted to hotel and tourism business, such as food courts, resorts, restaurants etc.

If 20% of the total built-up area is used for hotel rooms, the waiver will be available. Veterans in the realty business, who do not want to be identified, said the liberalisation moves were welcome changes that they have been waiting for.

These steps, when implemented, will provide relief to high-value projects in metros and projects being developed for the tourism sector.

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