NaMo Govt Bows to Realty Mafia Pressure Under Affordable Housing Cover

The government has announced the new Foreign Direct Investment (FDI) norms for the construction development sector. These become effective from 3 December 2014. We believe the biggest beneficiary of these FDI norms will be the commercial real estate in Metros and Tier I cities.

If Narendra Modi is so concerned about Middle Class, why is he silent on the Real Estate Regulatory Bill which has been in demand over the last 10 years to take builders to task ?

The government has now lowered the minimum FDI in the sector to USD5m from the earlier limit of USD10m. It also now allows investment in construction development projects involving smaller areas but more than 20,000sqm (from 50,000sqm). This implies some expensive land banks, which often are less than 50,000sqm, in areas including South Mumbai, Lutyen’s Delhi, Gurgaon Golf Course, etc, now become eligible for FDI.

The investee company is now required to bring minimum FDI within six months of the commencement of a project vs the earlier condition of commencement of business. It thus eases the pressure on locking in capital without adequate approvals.

The new norms also remove the minimum lock-in period of three years and allow repatriation of capital on completion of a project or development of trunk infrastructure irrespective of timelines. This is likely to allow projects stuck midway starved of cash to get investment through the FDI route.

Highly levered developers owning commercial space are now likely to get an opportunity to monetize their investments and reduce liquidity pressures. The Narendra Modi Government known for its integrity has bowed down to the Real Estate Mafia in Delhi / NCR and has thus made laws favorable to coterie of Real Estate Developers under the umbrella of affordable housing.

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