Real estate industry sees FDI to go up 15% after ease of rules

Sai Nikesh | The Dollar Business 

  India’s real estate industry is expecting more than 15% increase in the inflow of capital from overseas annually after the government eased Foreign Direct Investment (FDI) norms, a survey has said. “While about 55% felt that there will be more than 15% annual increase in FDI flow into realty sector, 23% felt the increase to be in the range of 10-15% and 22% felt that increase will be less than 10% annually from here on,” said the survey report “Impact of FDI Reforms on Indian Real Estate Sector," conducted by the Federation of Indian Chamber of Commerce and Industry (FICCI). According to the Department of Industrial Policy and Promotion (DIPP), FDI inflow into construction sector (including townships, housing, built-up infrastructure) between April 2000 and September 2015 is around $24.16 billion, which accounts for around 9% the total FDI inflows into the country during the period. Foreign investment in real estate sector saw a decline over the past few years from $ 3.14 billion in 2011-12 (April-March) to $0.08 billion in 2015-16 (April-September). Last month, the government had eased norms for foreign investors in 15 key sectors including realty. The survey, which assessed the mood of real estate industry after the relaxed FDI norms, found that 22% of the respondents are highly satisfied and 56% are satisfied with the changes made in FDI policy for construction development sector. Responding to a query on 'to what extent is 'liberalisation of FDI norms' helping the construction industry,' Raju John, Executive Secretary, Builders' Association of India, told The Dollar Business that 'the move was long overdue as the flow of funds to the real estate sector is yet to reach the desired level'. “We are hopeful and reasonably certain that it is a matter of time the industry will get attractive FDI as there a big shortage of housing in India particularly in the middle income sector. Once the sector attracts FDI and starts giving returns to investors, the sector will see more fund flows and this will certainly help the construction industry,” he added. The FICCI survey also said that commercial and retail sector is expected to receive maximum foreign capital followed by the residential sector including affordable housing projects. Other segments that stand to gain in order of priority are township projects, hotels & tourist resorts and old age homes, hospitals, Special Economic Zones (SEZs) and educational institutions. To a query in this regard on 'what sort of advantage the industry hopes from the ongoing government's initiatives like Smart Cities,' John said, “Smart cities will bring more employment opportunities, attractive transportation and easy connectivity. Government on its part has assured quicker environmental clearances, easy land acquisition norms, availability of funding from Centre and State Governments, which will hopefully attract major infrastructure players to be part of these schemes." However, strict norms in case of Unpredictable Taxation, NPAs & financial closure by banks, multiple and numerous labour laws, introduction of unimplementable pre-qualification norms as a pre-requisite to quote for the projects, remain serious challenges and are eliminating healthy competition in the Indian construction sector. We expect, completetion of these projects will change phase of the country to a 'developed nation' and supplemented by already exisitng 7.4% growth rate, the development of  infrastructure industry will act as a vehicle of growth for further progress, he added.  

 December 09, 2015 | 4:29pm IST.