July 20, 2020: The Indian government is reviewing its foreign direct investment (FDI) policy for the real estate sector to gauge whether 100% overseas investment can be allowed in completed projects. If implemented, this will permit real estate companies to monetise completed projects as many of them are struggling with the imapct of Covid-19 and the ensuing liquidity crisis. The move will help to revive an economically critical sector.
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The Department for Promotion of Industry and Internal Trade (DPIIT) is finding avenues to attract more investment in construction development at a higher interest in the sector from overseas. “There are only limited sectors where FDI norms can be further relaxed and housing is one of them,” said an official.
Read: Virtual tours and online launches gain traction in real estate sector
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3-Yr Lock-in Period Condition
Currently, India allows 100% FDI through the automatic route in construction-development projects — townships, residential and commercial buildings, roads, bridges, hotels, resorts, hospitals, educational institutions, recreational facilities and city and regional-level infrastructure. This is however, subject to a three-year lock-in period before the original investment can be repatriated.
India, however, prohibits FDI in the real estate business or construction of farm houses. FDI in construction development rose to $617 million in FY20 from $213 million in FY19.
As tax collections and divestments are not likely to pick up anytime soon, experts are of the opinion that foreign investment is the only way to pump liquidity into the system and kick-start economic activity.
“The industry has been asking for widening the scope of FDI,” said an expert on FDI issues. “Three-year lock-in period is a good enough time for the government to check for any speculation.”
