New Delhi/Bangalore: The government has proposed easier guidelines for allowing 100% foreign direct investment (FDI) in real estate, hoping to attract mid-level overseas developers to invest in the country.

The housing and urban poverty alleviation ministry has sent revised policy guidelines for FDI in the real estate sector to the department of industrial policy and promotion, a top official in the ministry said.

“These are likely to be passed soon and have been sent by the minister (Girija Vyas) herself," said the official, who did not wish to be identified.

The ministry has proposed reducing the minimum carpet area to be built in FDI-linked real estate projects to 20,000 square meters from its earlier requirement of 50,000 sq. m.

“We have proposed this because EIA (environment impact assessment) clearance is not required for a built-up area of 20,000 sq. m," the ministry official said.

Also, such projects will not be restricted to metro cities such as Delhi and Mumbai; all class 1 cities having a population of more than 100,000 will be included, he said.

The ministry found that the criteria of 50,000 sq.m. was restrictive for developers, and the high cost and scarcity of land in cities also prompted it to lower the requirement.

The reduction in built-up area and size of projects will allow mid-sized and smaller developers with good track record better access to FDI, said Rajeev Bairathi, executive director, capital transaction group and north, Knight Frank India, a property advisory.

“The specific relaxations regarding FDI policy in real estate would be good, but the government also needs to think of larger issues such as land titling, etc., because investments in agricultural or non-converted land will happen if titles are clear and there’s no ambiguity," he said.

Lalit Kumar Jain, chairman of the Confederation of Real Estate Developers Associations of India (Credai), said the grouping had placed three main demands on FDI before the government: built-up area to be reduced to 10,000 sq.m., removal of the land area cap of 10 hectares, and allowing foreign investors to invest fully (without a partner) in rent-generating assets.

“While some of these may not be met, this (lowering the built-up area requirement) is a positive step that will increase the inflow of funds into the sector. The good part also is that this will increase the base of the pyramid and where a lot more projects will get funding," said Jain.

The ministry official cited earlier said the requirement of a minimum land area of 10 hectares for serviced housing plots should not be reduced. “If we allow smaller plots then it will promote construction for the rich, but we are bothered about affordable housing," the official said.

The ministry has said the changes will encourage developers to come up with low-cost housing projects. There is a shortage of 18.78 million housing units in the country, 96% of which is for the economically weaker section and lower income group category.

The ministry has also proposed lowering the minimum capitalization for wholly owned subsidiaries from $10 million ( 60 crore) to $5 million. For foreign developers entering into real estate joint ventures with Indian partners, this has been proposed to be lowered to $2.5 million from $5 million.

The ministry has also recommended that the lock-in period for repatriation of FDI be three years or completion of project, whichever is earlier. Previously, the lock-in period was of three years or completion of minimum capitalization, whichever was later.

Also, while shares of developers were not transferable previously, the norm has been relaxed and shares can be transferred to other foreign companies, the ministry official said.

“If the minimum capitalization is reduced from $10 million and the three-year lock-in are removed, then that really improves the scope and opportunities for many projects," said the head of a domestic real estate fund that is currently raising an overseas fund.

This person, who didn’t want to be named, added that during a time when large projects such as townships were increasingly becoming difficult for developers to execute, the proposals are timely.

Amitabh Kundu, dean at the School of Social Sciences, Jawaharlal Nehru University, said the government should have also capped the area of a dwelling unit so that the problem of housing shortage in the country can be addressed.

“Since our housing shortage is for lower income and economically weaker sections of society, we should have specified the area of a dwelling unit also," he said.

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