The Hindu Business Line : `FDI reforms can pump $1-1.5 b into realty'

THE real estate sector could attract a whopping $1-1.5 billion of foreign direct investment every year if the Government permits FDI in all kinds of realty projects, and eases the existing stipulation of 100 acres for integrated townships, says a section of the industry.

The projections, however, vary across the realty sector with no authentic study available to quantify the FDI potential if the sector opens up further. "The overall market size of the sector may easily go up by at least 20-25 per cent across the board and attain a size of roughly Rs 200,000 crore over the next 3-5 years, if the Government permits FDI in stand-alone projects, including residential, commercial, entertainment and retail," said Mr Kumar Gera, President of Confederation of Real Estate Developers' Association of India.

In order to attain this level of FDI inflow into the real estate sector, the Government will need to look at bringing down the present stipulation of 100 acres for FDI in integrated townships to 20 acres, as such vast expanses of land are not easily available in urban areas.

"Such FDI in the real estate sector should be permitted with a lock-in period of three years and there should be no repatriation of dividend during the construction period in any case. There should not be any restriction on repatriation," Mr Gera said.

He added that in the case of those projects that did not fit into the Special Township category (commercial/ industrial/ information technology/ retail/ hotels/ multiplexes/ convention centres and residential complexes outside corporations) with the land masses measuring less than 100 acres, FDI of up to 49 per cent of the capital requirement should be stipulated.

The remaining 51 per cent could be held by a local individual, partnership firms, corporate bodies or financial institutions, he said and pointed out that the minimum paid-up capital requirement of the joint holding company should be $10 million.

The real estate industry, which has long been pressing for FDI in all real estate projects, including stand-alone ones, is now pinning its hopes on the Union Budget 2006, which is just around the corner. Currently, 100 per cent FDI is permitted in integrated townships. Integrated townships include housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities such as roads, bridges, mass rapid transit systems and manufacture of building materials.

According to National Real Estate Development Council (Naredco), despite the fact that FDI is permitted in the housing sector, not many foreign investors have shown interest till now, and the Government policy on FDI has to be given a fresh look to attract more foreign investment. NAREDCO, too, has suggested the reduction of minimum area for development to 20 acres, with a minimum of 500 dwelling units for a population of 2,000.

It has also mooted that the minimum capitalisation norm should accordingly be brought down to $2 million for wholly-owned subsidiaries and $1 million for joint ventures with Indian partners. "Instead of integrated townships, the Government should permit FDI in all kind of real estate development," said a NAREDCO official.

However, real estate consultant CB Richard Ellis opines that while FDI norms should cover investments in any or all sectors of real estate, there is an urgent need for fundamental reforms for the purchase of property.

"FDI in real estate sector is far from the satisfactory level and a lot needs to be done. Primarily, there is a need for fundamental reforms in real estate to allow ease of transaction in a transparent manner. Moreover, FDI needs to be opened up in all real estate projects, including commercial and retail," said Mr Anshuman Magazine, Managing Director - South Asia, CB Richard Ellis.

Mr Magazine feels that once these issues are addressed, the sector could easily see at least $400-500 million of fresh FDI in the next 3-4 years. He said a sizable chunk of this investment would primarily flow into residential and commercial projects.

"The investments could flow into cities like Bangalore, Mumbai, Delhi and Pune, as the demand is quite high in these places," he said. According to him, at least 8-10 overseas companies are keenly watching the space. He, however, declined to identify the players.

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