The Centre has liberalised FDI rules in as many as 15 sectors. Realty and construction is among the biggest beneficiaries, as all restrictions have been removed barring a three-year lock-in. Bloomberg TV India caught up with Rajeev Talwar, Group Executive Director of DLF, to discuss the implications for the real estate space.

The government last week relaxed FDI rules for 15 sectors including real estate. I want to get a sense of what you make of the entire reform process that had been slow and continues to be a bit slacking compared to what was anticipated…

I think this is the biggest thing which has happened after the 1991-96 reforms. The government has stated its intention very openly. They have also liberalised in more than one sector — in fact 15 sectors. I think this is the beginning we are seeing of the big-bang reforms, which are to come into the Indian economy if it has to grow from the current size of $2 trillion to something like $8-10 trillion in the foreseeable future.

Sweeping changes were made specifically in the construction and real estate segment — removal of limits on size and investment. What does that really mean for real estate projects?

Yes, I think the entire industry will benefit from the removal of the restrictions on minimum size and minimum investment and minimum capital investment or exit options and then making it possible for entities abroad to even trade in real estate plus also to put in money into finished projects. I think what they are really doing is opening the floodgates to finance, which will mean two things — first, any leverage balance sheet can be set right. There can be strength given to real estate developers and construction firms themselves.

Second, it would also mean a much greater change in the paradigm of real estate as well as developers in India. With money coming in, people can go in for projects with due land titles, with due approvals and put up structures which can then be offered to the Indian buyer and therefore may actually end up in changing the entire spectrum and canvas of Indian real estate development.

Besides these two there can be advantages that more money would mean more projects and greater supply would mean moderation of prices for the buyers. So I think, in all, lowering of interest rates earlier, announcement of such packages by the government will mean a huge value addition to employment as well as to GDP growth in the nation.

Now that foreign investment is allowed in finished projects, do you see a reduction in the large inventory?

I think yes. In residential projects I am sure an excess supply of money coming in will mean moderate prices at which it will be monetised and therefore the benefits will be passed on to the customer. But in terms of commercial and retail space it would also mean a great boost to expansion of supply right now and therefore it would mean — first, de-leveraging of companies which are stuck with assets and, second, it would mean a greater supply for new business to come in. So I think all these steps would lead to a huge change in the real estate and construction space in India.

FDI is allowed in small projects as well. Does this also mean big developers such as DLF will be keen on doing smaller projects?

You are absolutely correct. The traditional model of finance in real estate and construction is to take money from people after launching projects. If money is allowed to come in as equity and greater amount of money is allowed to come into smaller projects, I am sure affordable housing will get a huge boost, which is the intention of the government — to provide housing for all by 2022. This can actually lead to many industries, which are basic suppliers, like steel and cement, to also experience an upside. And, therefore, all of these should spell very well for the Indian economy and give a boost to GDP growth which is what construction and real estate have been traditionally known for.

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