FDI in real estate fails to take off due to unrealistic policy norms

Nisha Das
06 June 2003

Mumbai: The much talked-about foreign direct investment (FDI) in the Indian real estate segment has failed to take off due to the unrealistic policy norms formulated by the government.

Even after two years of passing the FDI in real estate, just one project has been cleared so far — a joint venture between Feedback Ventures and OCL India in collaboration with Kontur Bintang Sdn Bhd, incorporated in Malaysia, and Tan Sir G Gangalingam, a Malaysian citizen.

With an estimated cost of Rs 748 crore, this project will develop a residential township in Gurgaon near Delhi. According to a senior market analyst with Knight Frank, property consultants, the government has formulated totally unrealistic norms for FDI in real estate.

"Norms such as minimum 100 acres of development area, mandatory completion of 50 per cent work in five years and a three-year lock-in period for foreign equity have forced the multinational developers to stay away from the Indian real estate segment," he says.

The major reason that is putting foreign players off is the condition on the minimum area to be developed. For a foreign player, finding 100 acres of land around Indian cities will be a Herculean task as most land may have already been cornered by local developers.

Besides, the government is not yet clear on the provisions for providing basic infrastructure like roads and electricity to the developer. Industry observers say the decision to allow 100-per cent FDI in real estate had addressed one of the fundamental reasons that kept the Indian realty bogged down all these years and the paucity of fund flow into the sector. But this is not really happening.