Background

In line with the press release issued by the Union Cabinet on 29 October 2014 (Press Release) approving proposed amendment to the foreign direct investment policy, 2014 (FDI Policy) applicable to the Construction Development sector, the Department of Industrial Policy and Promotion (DIPP) has issued press note no 10 (2014 series) dated 3 December 2014 amending the ‘Consolidated FDI Policy Circular 2014’ (Press Note).

Previously, we had circulated a Newsflash titled ‘A New High for the Real Estate Industry’ (please click here) which examined in detail the impact of the Press Release against the extant FDI Policy on the real estate sector. This Newsflash analyses the deviation of the Press Note from the Press Release and the corresponding impact on the FDI Policy.

Amendments to the FDI Policy – Construction Development Sector

  1. Minimum area to be developed

The concept of combination projects involving construction development and service housing plots has been eliminated. The revised FDI Policy lays down a minimum area required to be developed only for ‘construction development projects’ of 20,000 square meters of floor area.

  1. Exit policy

The Press Note has further simplified the exit policy conditions to provide that the Investor can exit upon completion of the project or after development of trunk infrastructure.

Further, what constitutes ‘trunk infrastructure’ has been clearly laid out in the Press Note as ‘roads, water supply, street lighting, drainage and sewerage’.

  1. Affordable Housing Projects

The Press Note lays down that “project using at least 40% of the FAR/FSI for dwelling unit of floor area of not more than 140 square meters will be considered as affordable housing project”. Moreover “out of the total FAR/FSI reserved for Affordable Housing, at least one-fourth should be for houses of floor area of not more than 60 square meter”. The modification of the definition of an ‘Affordable Housing Project’, can be summarised below:

  1. The minimum requirement to qualify as an affordable housing has been reduced from 60% to 40%;
  2. The Press Note uses ‘floor area’ instead of ‘carpet area’ for the measurements of the land area for affordable housing;
  3. The unit size to be considered for affordable housing has been increased from 60 square meters (carpet area) to 140 square meters (floor area) with a condition that, at least 25% of the units under affordable housing should be of floor area not exceeding 60 square meters; and
  4. The DIPP has eased the obscurity of the requirements and considerations for ‘EWS category’ in relation to affordable housing projects.

Khaitan Comment

Further to our previous Newsflash on the topic (please click here), the most notable modification to the FDI Policy comes by way of elimination of the 3 year lock-in period paving way for facilitating exit for the investor upon completion of the project or trunk infrastructure. 

However, interestingly, the Construction Development sector as defined under the FDI Policy has been modified to include ‘roads or bridges’ under the Press Note. It is unclear as to how infrastructure developers will comply with these conditions and the overlap with ‘Infrastructure sector’ could create some confusion.