The Hindu Business Line : India Inc hails 100 pc FDI in construction sector

The Union Government's decision to permit 100 per cent Foreign Direct Investment (FDI) on the automatic route in construction projects has brought cheer to the real estate industry. Players termed it a path-breaking move that would attract "billions of dollars of foreign investment" into the sector.

"It is a step in the right direction and the liberalisation of norms will augur well for the realty sector, especially the dilution of the 100 acre norm to 25 acre," Mr Amitav Ganguly, Vice-President, Ansal Properties and Infrastructure Ltd, said.

He said various high profile players were receiving enquiries from foreign investors and, Ansal - where promoter stake is as much as 67 per cent - is open to discussions.

"It is in a preliminary stage. The amount of stake to be diluted would depend on the negotiations," he said. Mr Ganguly felt that allowing State Governments and Municipal bodies to approve projects could prove problematic as this meant dealings with the State agencies.

According to Mr Niranjan Hiranandani, Managing Director, Hiranandani Constructions Pte Ltd, "Another positive point is that Government has prohibited sale of undeveloped land to avoid speculation in real estate by foreign investors. With relaxation of FDI norms, India could attract $2-3 billion in the first year itself. Next year it could be $10 billion. Most of it will come into housing and commercial projects."

Mr Hiranandani, however, emphasised that the benefits of opening up the sector would reach the masses only if the States completed the reforms process. "For instance in Maharashtra, the Urban Land Ceiling has not been scrapped. In addition, the stamp duty should be brought down to 2-3 per cent. If money comes in without adequate reforms, we may land up in an inflationary situation," he warned.

Mr Anshuman Magazine, Managing Director - South Asia, CB Richard Ellis felt that the move would cut down the procedural hassles and encourage investors.

Meanwhile leading chambers too welcomed the decision and said it augurs well for the country's growth and employment scenario. "It will have a multiplier effect on the economy," said Mr Mahendra K. Sanghi, President of Assocham, expressing hope that it would provide enhanced employment opportunities.

Confederation of Indian Industry felt that increased investment in the sector would have a cascading impact on the economy, especially core infrastructure industries such as cement, steel, and downstream industries.

The President of FICCI, Mr Onkar S. Kanwar, said it would give tremendous boost to group housing condominium, shopping malls and retail business.

Our Mumbai Bureau adds: "It sounds good, but we must see what other conditions might be applicable," said a spokesperson for Housing Development Finance Corporation.

"Unfortunately, there are not too many clarifications," said Mr Balaji Rao, Managing Director of TCG Urban Infrastructure Holdings Ltd, whose chief promoter is a non-resident Indian.

"But as far as liberation of FDI goes, I think it is a great positive move. But we must see whether there are any riders." As for the reduction of the acreage limit to 25 acres, Mr Rao says it is welcome.

It must be clear whether FIPB approval would be waived for construction or for acquisition of the land itself, said another developer.

"Sheer construction is not of much relevance to a developer unless he also gets land rights for what he is building on."

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