526 week ago — 7 min read
Since taking charge in May 2014, the Government of India has initiated various liberalisation measures to attract foreign investments. Apart from Foreign Direct Investment (“FDI”) relaxations covering projects in rail infrastructure, defense and construction development (being townships, housing and built-up infrastructure, etc.), the recent changes also streamline the process of obtaining industrial licenses.
While FDI in real estate/construction development has been permitted since 2005, it has been subject to many conditions like development of minimum area, minimum capitalisation, investment lock-in, restriction on FDI in residential plots, restriction on transfer of shares, etc. These conditions could be met only by the big industry players.
The recent announcement by the Union Cabinet relaxing the FDI norms in the construction development send out a positive signal. While the formal press note is still awaited, we have attempted to compare the existing policy related to construction development with the proposed policy.
Minimum area to be developed
Existing Policy
Proposed Policy
Minimum capitalisation requirements
Existing Policy
Proposed Policy
Special benefits in case of affordable housing
Proposed Policy
Lock-in Period
Existing Policy
Proposed Policy
Transfer of shares
Existing Policy
Proposed Policy
Waiver of period of development
Existing Policy
Proposed Policy
Operation and management of townships, malls etc. (Completed projects)
Proposed Policy
Investor responsibilities
Existing Policy
Proposed Policy
Advaya Legal’s View: It is a welcome step to give the required boost to construction and development sector, promote affordable housing and resultant employment generation. The foreign inflows in the sector have been showing a declining trend since 2009-2010 .The changes, especially with regard to ‘minimum area to be developed’ and ‘reduction in minimum capitalisation’ are expected to encourage foreign investors to set up wholly owned subsidiaries. Having said that, trunk infrastructure still remains a problem in major cities in the country, without which the development of the sector will always be a challenging task. The amendments are in line with new Government’s vision to establish 100 new cities to reduce the burden on metro cities.
Article Courtsey: http://advayalegal.com/newsletter/Newsletter%20-%20November%202014.pdf
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*The date of approval of building plan/layout plan by statutory authority will be treated as the date of commencement of the project.
**Projects using at least 60% of the FAR/FSI for dwelling units of Carpet Area not more than 60 square meters will be considered as Affordable Housing Projects. In addition, 35% of the total number of dwelling units constructed should be of carpet area 21-27 sqm for EWS category. Such projects can have a mix of EWS/LIG/Higher Category DUs and commercial units. Provision of servant's quarter along with the main dwelling unit will not be counted as dwelling units for EWS/LIG under Affordable Housing project.
*** Trunk infrastructure shall include roads, water supply, street lighting, drainage and sewerage.
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