The changes in the foreign direct investment (FDI) policy will help listed companies in the real estate and construction sector.
Removing the caps on project size, giving greater flexibility in transfer of investments to other overseas investors and allowing investments in completed projects will attract more investments into this sector.
Merging the sub-limits for FPIs and foreign direct investment in private sector banks will help those banks that are close to hitting their FPI investment caps. They will now have higher head-room to woo foreign portfolio investors.
The earlier 20,000 sqm cap on minimum built-up area of projects in which FDI was allowed has now been removed.
There is also no minimum capitalisation requirement for projects. The capital requirement was reduced to $5 million in December 2014 from $10 million earlier. The removal of these caps will allow foreign investors to plough money into smaller projects as well. Earlier, exit was allowed only after three years of meeting minimum capitalisation; this, too, was relaxed last December.
Investors could also exit after completing basic infrastructure such as roads, water supply, street lighting, drainage and sewage, even if the lock-in period was not met. Now, the development has been broken into different phases and exits will be linked to meeting requirements in each phase.
Read: New FDI norms will help banks, media cos
Also, the lock-in for transfer of stake from one non-resident to another has been done away with.
But the clarification on property leasing is likely to see the biggest impact. The new rules state that rental income from property does not amount to transfer and hence will not fall under the real estate business — a sector where FDI is not permitted. This means investments in completed projects, with the intention to earn rental income, is now allowed without any FDI restrictions.
A few clauses have been left unchanged. For instance, 100 per cent FDI under the automatic route is permitted in completed projects for operation and management of townships, malls/shopping complexes and business centres. Likewise exit and repatriation was allowed prior to project completion under the automatic route after a three-year lock-in.
The changes will benefit DLF and Godrej Properties who own commercial property and have a stressed balance sheet.