FDI in realty may revive stuck projects

The new policy for foreign direct investment in the construction sector could help revive several hundred midsize housing projects that have been stuck for want of capital, fund managers and builders said.

Earlier this week, the government said it has done away with conditions such as a minimum investment of $5 million within six months of the start of the business and project size of 20,000 sq metres for foreign money in the sector.

Each phase of construction would be considered as a separate project for the purposes of FDI.

That means, a foreign investor can exit and repatriate money even before the entire project is completed – which wasn’t previously allowed – if he has been invested for at least three years.

The investor can exit also if the project is completed before the lock-in period ended.

“Exit was the big issue. This move will improve confidence among investors and the reduced threshold will also bring in smaller funds. This will improve liquidity situation in the market in the short term and also help revive mid-size projects that are stuck,” said Anshuman Magazine, chairman and managing director of property consultancy CBRE South Asia.

According to property research firm PropEquity, close to 2,500 real estate projects in the top eight cities of the country were delayed by more than 12 months and about a third of these could be considered as stuck.

Vineet Relia, managing director of Gurgaon-based development fund SARE, which is backed by a foreign private equity fund, said the new rules would benefit funds like his as they could pick up many smaller projects at the level of special purpose vehicles that they were unable to do earlier.

ET view: Project delays will end

More money will flow to the fund-starved real estate sector. Liberal rules, including easier exit, mark the loosening of capital control. It will encourage smaller projects and lower the risks of delay.

The new rules will also create room for short-term capital, and increase the supply of good quality urban real estate. However, to have more urban centres with high density and planned amenities, the government must have a robust policy to release urban land. Home-buyers can then have affordable homes.

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