India is likely soon to relax restrictions on foreign direct investments (FDI) in housing construction, to help restrain the rupee’s dive.
The proposal before cabinet is the latest in a series of moves by PM Manmohan Singh to encourage dollar inflows. Restrictions in 13 other sectors have already been relaxed or removed, including telecommunications, multi-brand retail, civil aviation, and defense equipment.
Proposed changes to India's real estate laws:
- The minimum area for serviced housing developments to be been reduced to 5 hectares, from the present 10 hectares. For construction developments, the minimum built-up area cut to 20,000 square metres, from 50,000 square metres.
- The minimum capitalisation for both wholly-owned subsidiaries and joint ventures with Indian partners reduced to $5 million, from $10 million. However, companies will need to bring in the entire amount within six months of building plan approval by statutory authority.
- The lock-in period for repatriation of FDI will be three years or on completion of project, whichever is earlier. Presently, the lock-in period is three years or upon completion of minimum capitalization, whichever comes later.
There was a 57% decline in housing construction FDI in 2012-13 because of uncertainty in India’s economy, and because of the glut in unsold new houses. Real estate accounted for 11% of India's total FDI between April 2000 and June 2013.
In parallel with government’s drive for FDI, the Reserve Bank of India (RBI) has instituted measures to encourage dollar inflows. Banks can now offer higher returns on non-resident deposits with a tenure of three years. New restrictions discourage individuals and firms from spending or investing abroad. The importation of gold coins and medallions has been prohibited, and Indian nationals are barred from buying property abroad.
The rupee is now down to 62.81 against the dollar. Some say it will depreciate further, because of the general election next year.