India opens construction sector to 100% FDI

03 Dec 2014


Foreign direct investment (FDI) of up to 100 per cent will now be permitted in construction of projects, including development of townships, construction of residential  / commercial premises, roads or bridges, hotels, resorts, hospitals,  educational institutions, recreational facilities, city and regional level infrastructure, according to a press note issued today.

Such construction-development projects will get approval through the automatic route, with immediate effect, according to the press note issued by the ministry of commerce and industry.

To be eligible for FDI, the minimum land area for development of serviced housing plots should be 10 hectares. In the case of construction-development projects, the minimum built-up area should be 20,000 sq metres while in the case of a combination project, any one of the two conditions would suffice.

The minimum capitalisation for wholly-owned subsidiaries has been set at $10 million and for joint ventures with Indian partners it has been fixed at $5 million.

The funds would have to be brought in within six months of commencement of business of the company and the original investment cannot be repatriated before a period of three years from completion of minimum capitalisation.

The lock-in period of three years will be applied from the date of receipt of each installment / tranche of FDI or from the date of completion of minimum capitalisation, whichever is later.

However, the investor may be permitted to exit earlier with prior approval of the government through the FIPB.

At least 50 per cent of such project must be developed within a period of five years from the date of obtaining all statutory clearances.

The investor / investee company would not be permitted to sell undeveloped plots - undeveloped plots are those where roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable under prescribed regulations, have not been made available.

The investor should provide the infrastructure and obtain the completion certificate from the concerned local body / service agency before being allowed to dispose of serviced housing plots.

The project should conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the state governments and local authorities concerned.

The investor will 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.

The investor will be permitted to exit on completion of the project or after development of trunk infrastructure, ie, roads, water supply, street lighting, drainage and sewerage, etc, are completed.

The state government and local bodies concerned, which approve the building or development plans, would monitor compliance of the conditions by the developer.

The conditions regarding land area and built-up area, period of construction and repatriation of capital would not apply to the construction of hotels and tourism infrastructure, hospitals, special economic zones (SEZs), educational institutions, old age homes and investment by NRIs.

In cases where the government, 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 project, the proposal will be considered by FIPB on case-to-case basis.

A project using at least 40 per cent of the floor space index for dwelling unit of floor area of not more than 140 square metre will be considered as affordable housing project for the purpose of FDI policy in construction development sector. Out of the total FSI reserved for affordable housing, at least one-fourth should be for houses of floor area of not more than 60 square meter.

The government has clarified that 100 per cent FDI under automatic route will be permitted in completed projects for operation and management of townships, malls / shopping complexes and business centres.

FDI is not allowed 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).

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