Business & Economy

Cabinet okays amendments in FDI policy for construction sector

NetIndian News Network

New Delhi, October 29, 2014

The Union Cabinet, chaired by Prime Minister Narendra Modi, today approved amendments in the existing foreign direct investment (FDI) policy in the construction development  sector under which, among other things, 100 per cent FDI would be permitted under the automatic route. .
The amendments are in line with the announcements made by the Government in the Budget Speech for 2014-15, an official press release said.
According to it, the amendments in the relevant paragraphs of the extant FDI policy as contained in the Consolidated FDI Policy Circular 2014 are as follows:
I.   100 percent FDI under automatic route will be permitted in the construction development sector.
II.   Investment will be subject to the following conditions:
(A) Minimum area to be developed under each project would be:
i.    In case of development of serviced plots, there is no condition of minimum land,
ii.   In case of construction-development projects, a minimum floor area of 20,000 sq. meters.
iii.  In case of a combination project, any one of the aforestated two conditions will need to be complied with.
(B) The investee company will be required to bring minimum FDI of US$ 5 million within six months of commencement of the project. The commencement of the project will be the date of approval of the building plan/lay out plan by the relevant statutory authority. Subsequent tranches of FDI can be brought till the period of ten years from the commencement of the project or before the completion of the project, whichever expires earlier.
(C) The investor will be permitted to exit on completion of the project or after three years from the date of final investment, subject to development of trunk infrastructure.
(D) The Government may, in view of facts and circumstances of a case, permit repatriation of FDI or transfer of stake by one non-resident investor to another non-­resident investor, before the completion of the project. These proposals will be considered by FIPB on case to case basis.
(E) The project shall conform to the norms and standards, including land userequirements and provision of community amenities and common facilities, as laiddown in the applicable building control  regulations, bye-laws,  rules,  and otherregulations of the State Government/Municipal/Local Body concerned.
(F) The Indian investee company will be permitted to sell only developed plots. For the   purposes of this policy "developed plots" will mean plots where trunk infrastructure including roads, water supply, street lighting, drainage and sewerage, have been made available.
(G) The Indian investee company shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/ Municipal/Local Body concerned.
(H) The State Government/ Municipal/ Local Body concerned, which approves the building / development plans, will monitor compliance of the above conditions by the developer.
The release said these measures are expected to result in enhanced inflows into the sector consequent to easing of sectoral conditions and clarification of terms used in the  olicy. It is likely to attract investments in new areas and encourage development of plots for serviced housing given the shortage of land in and around urban agglomerations as well as the high cost of land. The measure is also expected to result in creation of much needed low cost affordable housing in the country and development of smart cities.
The release clarified that FDI is not permitted in an entity which is engaged or proposes to engage in real estate business, construction of farm houses and trading in Transferable Development Rights (TDRs).
"Real estate business" will have the same meaning as provided in FEMA Notification No. 1/2000-RB dated May 3, 2000 read with RBI Master Circular that is dealing in land and immovable property with a view to earning profit or earning income therefrom and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.
The release also said that conditions at (A) to (C) above will not apply to hotels and tourist resorts; hospitals; Special  Economic Zones (SEZs); educational  institutions, old age homes and investment by NRIs.
The conditions at (A) and (B) above, will also not apply to the investee/joint venture companies which commit at least 30 percent of the total project cost for low-cost affordable housing.
An Indian company, which is the recipient of FDI shall procure a certificate from an architect empanelled by any authority authorized to sanction building plan to the effect that the minimum floor area requirement has been fulfilled.
Floor area will be defined as per the local laws/regulations of the respective state governments or Union Territory administrations.
Completion of the project will be determined as per the local bye-laws/ rules and other regulations of State Governments.
Projects using at least 60 percent of the FAR/FSI for dwelling units of Carpet Area not more than 60 sqm. will be considered as Affordable Housing Projects. In addition, 35 percent of the total number of dwelling units constructed should be of carpet area 21-27 sqm for EWS category. Such projects can have a mix of EWS/LIG/Higher Category DUs and commercial units. Provision of servant`s quarter along with the main dwelling unit will not be counted as dwelling units for EWS/LIG under Affordable Housing (AH) project.
The release clarified that 100 percent FDI under the automatic route is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres.

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