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Why Will 2015 See An Increase In Fdi In Real Estate?
It is no news that the last few years have been hard on the real estate sector. Property business has seen a change for the worst. Even though experts had touted it to happen, but the sudden slowdown was unexpected and took everyone by surprise.
During the start of 2014, it was anticipated that the year would be the bounce back year. However that did not happen as anticipated. The year did spring many surprises, some god and some bad. Amongst the good ones, Kolkata took the limelight when the demand for property increased many fold in the city. As a result, the city witnessed an increase in property values by as much as 45%. Some areas saw an even higher growth.
Amongst the bad surprises of the year were the ban on the Hiranandani projects and the debarring of DLF from the capital markets. Both news were again unanticipated and took the realty sector by surprise. The harsh measures however did bring to forefront the willingness of people and authorities to initiate legal proceedings if the services provided by builders were inadequate or out of line.
Then of course the slowdown continued through the Diwali season which is considered to be a time of high sales. Post which the market has watching with bated breath the events unfolding. Investment in all territories has slowed down as investors wait for a positive sign. With the declaration of construction of Trump Towers in Mumbai and Pune, both these markets have witnessed a spark. Property investment in Pune has increased due to the demand of luxury housing in the city.
FDI Investment Norms
In view of the gloom that has pervaded the real estate sector; the Indian government has recently eased the FDI norms. The real estate industry has hailed it as a positive move and now awaits further developments as many foreign institutional investors plan to invest in the country. Share values of many property companies gained points after the news as anticipation of more funds being available buoyed the market sentiments.
These funds would be used to clear debts and bring the pending projects up to speed for completion on time. Other sectors apart from the buoyant real estate in Pune and Mumbai will soon see a revival. The impact of these norms would be seen in the following year.
As per the new norms, a foreign institutional investor can now invest in the country with a minimum of $5 million. This amount is the half of the previous minimum requirement. Similarly, the minimum floor area for foreign entity was earlier set at fifty thousand square feet. This minimum area now has been brought down to a mere twenty thousand square feet. Where service plots are concerned, the earlier requirement for investment was to target development of a 10 hectares area. Now that norm has been completely removed. The 3 year lock-in period remains.
The move has been made bearing in mind the much needed development of low cost housing and the development of new smart cities. After the pending legislations are cleared, the market should see a new life leased into them.
The new FDI norms have infused a much needed whiff of life in the realty sector of India. The waning investor confidence has been revived and the country would enter the year 2015 with a positive note.