With the Cabinet approving relaxation in construction foreign direct invest (FDI) norms, the new government seems to be walking the talk and drew a clear roadmap for building affordable houses. Has the govt realised the fact about the cash strapped sector, actually instigated to carry out a curative .Hence, indicating its first direction in the history of India where affordable housing after the dropping of 80IB by the Congress government was brought back to fore.
This effective step will augur traction of foreign investors parking funds back into the sector; expected to witness spurt in FDI of about E$10bn-15bn in the next economic year. Also, with REITs coming in shortly with amendment in capital gain tax indicates great emphasis towards building outstanding infrastructure and the smart cities.
To concur with the target set by Modi govt of building 25mn houses by 2022, he indicated the creation of affordable housing to meet the mantra of Housing for All. Thus, the segment of affordable housing is important to him and he knows that the industry needs capital very badly. That is why the FDI rules relating to capital coming in for the real estate has been modified especially in the segment of affordable housing. So, if you have 30 percent of the area for affordable housing, no conditions would apply because the three major conditions have been waived completely .So, up till now last couple of years there was only disincentive to make affordable housing. Taxation was painted by the same brush whether you made luxury housing or affordable housing. This is the first time where affordable housing is given a significant different colour where all the conditions have been dropped. Secondly, also they have given an indication that FDI in respect of smaller area and even commercial, etc have been changed and those conditions though the lock-in period and other things have continued they have also reduced the areas, so people can put FDI in smaller projects and even ready built properties. So, I think what is happened is he has started action and he has said that direction should be given for the purposes of indicating capital requirements in real estate especially in the segment of affordable housing; kudos to making a great beginning.
Three points; number one, nothing happens overnight. FDI cannot come tomorrow morning. You have to understand that this gives a direction; this gives an indication, an attraction. So, people will start looking at this and I think it will start getting working in about three to six months period of time. The second issue which you have to understand is that there is a huge expectation - the gross domestic product (GDP) of the country which we have directed to increase is going to happen and hence there is going to be an improvement of the economy. This has already been indicated by the Sensex moving up.
So, as the economy starts moving up, the interest to put money through FDI route is definitely going to be looking more and more attractive. So, what you will see is a burst of investments post January-March. Probably by the Q2 of 2015 you will see investment. Third is that the Budget will have to see a modification of the REITs regulation in terms of capital gains. What has been done is not significant enough to attract REITs investment. Arun Jaitley will definitely have to make an amendment in the Budget in respect of capital gains and the pass through in respect of the REITs. Though he has done some amendments; it is not enough. So, we will see some movement in this direction before you actually see a burst of investment into India.