FDI may be allowed in all realty projects

RUN-UP TO BUDGET 2005

Nod likely for foreign players to construct malls.

The government is planning to allow foreign direct investment (FDI) in all real estate projects, including housing. At present, 100 per cent FDI is allowed only in integrated townships.

A government official told Business Standard that options for greater foreign investment in the real estate sector included allowing foreign players to construct malls or even standalone residential dwellings.

An announcement for liberalising the foreign investment regime in the real estate sector is expected in the Budget.

The government was contemplating setting a requirement for floor area in constructed units instead of prescribing the acreage.

"It is becoming increasingly difficult to find 100 acres of land around cities. This is proving restrictive," an official said, adding that it did not make sense for Indian retailers to lock up capital in building malls and multiplexes when there were specialised builders for the purpose.

Officials said the urban development ministry had already initiated a dialogue with the stakeholders and that a Cabinet note on liberalising FDI in real estate would be prepared by the commerce and industry ministry soon.

Under the present guidelines, 100 per cent FDI is permitted for development of integrated townships, including houses, commercial property, resorts, roads, bridges and manufacturing of building material. Developing land and providing allied infrastructure have to be an integral part of the project.

Besides, the government has set a minimum acreage of 100 acres and builders have to follow the local by-laws. In the absence of local rules, at least 2,000 dwelling units for a population of 10,000 people have to be constructed.

Also, a capitalisation of $10 million for wholly owned subsidiaries and $5 million for joint ventures with Indian partners have been prescribed along with a lock-in period of three years from the date of capitalisation for repatriation of the investment.

Investors view the norms as very restrictive and only a handful of players, including a consortium of High Point Rendel of the UK, US-Based Edaw Ltd, Kikken Sekkel of Tokyo, Canada-based Royal Indian Raj International Corporation, Dubai-based Emaar Group, Lee Kim Tah Holdings and CESMA International , a subsidiary of the Singapore government's housing agency, have entered India.

Officials admit that in the wake of the restrictive rules, merely three proposals have come to the Foreign Investment Promotion Board in the last four years.

There have been demands by various international players and bilateral trading partners like Singapore to do away with the acreage requirement.

Singapore, as part of the negotiations for the Comprehensive Economic Co-operation Agreement, had proposed that the acreage be reduced to 20-30 acres to enable companies to set up multi-storied residential complexes in cities like Hyderabad and Bangalore.