FDI rules in construction development sector

The Department of Industrial Policy & Promotion has formalised the new FDI rules in construction development sector vide their PRess Note no. 10/2014 dated 3rd December, 2014.

FDI is allowed upto 100% in automatic route in construction, development of townships, housing, built-up infrastructure and construction development projects (which would include but not be restricted to housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure).

Under the new Rules

1) Minimum area to be developed under each project of serviced housing plots has been done away with, so no minimum area requirement under this clause;

2) Minimum area for development of construction development projects has been brought down from 50,000 sq. mtrs to 20,000 sq. mtrs;

3) Minimum capitalization norms have been relaxed. The investee company will be required to bring in US$5 million within 6 months of the commencement of the project which is approval of the building / layout plan by the relevant authorities. The balance monies can be brought in tranches till a period of 10 years from the commencement of the project or before completion of the project, whichever is earlier. The earlier capitalization norms were US$10 million for wholly owned subsidiaries and US$5 million for joint ventures with Indian partners. That classification has also been done away with;

4) The investor is allowed to exit on completion of the project or after development of trunk infrastructure i.e. roads, drainage, sewerage, water supply, street lighting etc. Earlier the investor was locked in for a period of three years from the period of minimum capitalisation. Now the government may on a case by case basis allow repatriation of FDI or stake sale from one non resident investor to another non resident investor before completion of the project;

5) The requirement that 50% of each project must be developed within a period of 5 years from the date of obtaining all statutory clearances has been done away with.

6) FDI is not permitted in real estate business, construction of farm houses and trading in transferable development rights (TDRs);

7) The conditions regarding minimum area, capitalisation and exit norms are not applicable to hotels and tourist resorts, hospitals, special economic zones (SEZs), educational institutions, old age homes and investment by NRIs;

8) The conditions regarding minimum area and capitalisation norms are not applicable where the investee/ joint venture companies commit at least 30% of their project cost  to affordable low cost housing;

9) The Indian company which is the recipient of the FDI should procure a certificate from an architect empannelled by any Authority authorised to sanction building plan to the effect that the minimum area requirement has been complied with;

10) Completion of the projects will be determined by the local bye laws/ rules and other regulations of the state government;

11) 100% FDI under automatic route is allowed in completed projects for operation and management of townships, malls/ shopping complexes, and business centres.

The Press Note is available at http://dipp.nic.in/English/acts_rules/Press_Notes/pn10_2014.pdf

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