Update: Relaxation of FDI Norms for Construction Development Sector

[The following post is contributed by Bhushan Shah at Mansukhlal Hiralal
& Company, Mumbai]
The Union Cabinet on 29 October 2014 decided to amend the Foreign
Direct Investment (FDI) policy in the
construction sector, i.e. townships,
housing and built-up infrastructure. The press release is available here.
The key amendments are as follows:
area to be developed
: (a) The minimum built up area has
been reduced from 50,000 square meters to 20,000 square meters for construction
development projects (b) The term “service housing plot” has been replaced by
“service plots” allowing companies to have commercial plots. Further the minimum
built up area for plot has been reduced from 10 hectares to nil;
The minimum capital requirement (which is to be brought within 6 months of the
commencement of the project) has been reduced from USD 10 million to USD 5
million for a wholly owned subsidiary;
Exit: Investors can
now exit the project immediately after the completion of the project or after 3
years from the date of final investment subject to the development of trunk
Transfer: Transfer from one
non resident investor to another non resident before completion of the project has
been permitted subject to the approval of the Foreign Investment Promotion
The cabinet has proposedthat any project which has a 30% allocation of total
project cost for low-cost affordable housing would be exempted from compliance
of the conditions pertaining to minimum capitalisation and minimum developed
area norms;
For completed projects, 100% FDI under the automatic route is allowed for
operation and management of townships, malls/shopping complexes and business
Responsibility Eased
:  (a) Responsibility of Investor for obtaining
all regulatory permission by the investor has been dropped; (b) The condition regarding
development of 50% of project within 5 years from the date of commencement and
making it the responsibility of the investor has now also been waived.
The aforesaid
amendments will come into effect upon the Department of Industrial Policy &
Promotion issues
a press note notifying the changes.
The relaxations in
the conditions for foreign investment in real estate and construction sector
are a significant boost to foreign investors to invest in residential and
commercial projects. Real estate developers see the most incentive in reduction
in area and capital requirements, as they will provide the much needed
liquidity in the sector. This may also represent major steps for fulfilment of
the goal of creating smart cities across the country at affordable pricing.
– Bhushan Shah

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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