India Relaxes Rules for Foreign Investment in Property Development

---

Foreign Investment in India's Property Market Poised to Spike
 
India has relaxed its rules on overseas investment in construction, which is expected to give a huge boost to property development in the country.
 
The government's union cabinet this week approved measures including reducing the minimum foreign direct investment (FDI) requirement in construction development to $5 million from $10 million and lowering the minimum built-up area demanded of overseas investors to 20,000 square metres from 50,000 square metres. India has also eased the exit rules for foreign investors in the sector.

See Related Story: Hines Group Makes $250 Million Bet on India.
 
"The recent relaxation of FDI norms in construction development is expected to provide an immediate breather to the cash-strapped real estate sector," said Neeraj Bansal, a partner and head of the real estate and construction sector at KPMG in India.
 
"In the near term, we expect the policy to support housing and commercial office projects in metro cities such as Delhi and Mumbai, where project size is generally small, yet requires heavy investment, due to expensive land parcels and high construction cost."
 
India's government in a statement said that the changes in the rules are expected to result in more inflows into the industry, with development of affordable housing and smart cities among the areas of the property sector that could stand to benefit the most.
 
The new Indian government, which came to power in May in a landslide victory, is aiming to develop 100 smart cities across the country. There are urban housing shortages in India, so it is hoped that the eased rules will help alleviate such problems.
 
Experts also note that there could be other benefits.
 
"The government's decision to relax the FDI norms in the real estate sector is very encouraging as it will reduce the cost of funds for builders significantly and would translate into lower prices for the end-consumers," said Nimesh Bhandari, the chief executive of RealtyCompass.com, an Indian property portal. "More FDI would also mean the builders would have to adhere to the international norms and builders will be forced to be more transparent in the way they operate. So overall the sector will become cleaner, efficient and consumer friendly".
 
Shailesh Puranik, the managing director of Puranik Builders, an Indian developer, said that "the decision came at the time when the sector was showing signs of good recovery from a long time steady-sluggish trends".
 
India allowed 100 per cent foreign direct investment in construction in 2005, including development of residential and commercial properties, townships, educational institutions and entertainment facilities.
 
"The relaxation in minimum area will result in better developments in urban centres where space has always been a constraint and reduction in minimum capital requirement will encourage private equity investments in this space on account of lower risk and better returns, thus allowing FDI to participate in prime locations and smaller projects," said Vishwajeet Jhavar, the founder and chief executive of Marvel Realtors, a luxury developer based in Pune in India.
 
But all these results are not likely to happen overnight, analysts warned.
 
"Overall this is a positive move and only reflects the government's intention towards reviving the sector," said Shishir Baijal, the chairman and managing director of Knight Frank. "However, we need to understand that FDI will not begin flowing within the next 24 hours as we foresee another 8 to 12 months for the decision to bear fruit."