Real Estate - FDI Norms Relaxation: Concrete Measures; Sector Update :: Edelweiss report

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The Union Cabinet has given its nod to amend the existing real estate Foreign Direct Investment (FDI) policy in order to align it with the government’s Budget announcement. Key revisions are: slashed minimum investment to USD5mn from USD10mn and built up area to 20,000sqm from 50,000sqm earlier. Further, the minimum area and minimum capital on serviced plots and affordable housing has been done away with. We perceive this development as positive for developers with existing joint development / investment arrangements with foreign investors - they will gain as their addressable market will expand. Also, developers with large land banks will benefit with potential increase in demand for land. Within our coverage universe, Sobha Developers, Godrej Properties and Brigade Enterprises are likely to be key beneficiaries. While DLF and Jaypee Infratech could also potentially benefit from the relaxation, we believe the gain will be curtailed by the overall weakness in the NCR market in the near term.

FDI norms relaxation: Reinforcing foundation

The Union Cabinet has given its nod to amend the existing real estate FDI policy in order to bring it in line with the government’s Budget announcement. While 100% FDI was always permitted, the norms have been relaxed considerably. Key revisions are slashing of the minimum investment to USD5mn and the built up area to 20,000sqm from USD10mn and 50,000sqm, respectively. Further, condition for minimum land for development of serviced plots has been removed completely. Also, projects entailing 30% cost towards affordable housing will not have minimum area or minimum capital requirement (affordable housing project is defined as one where at least 60% houses have carpet area less than 60sqm and an additional 35% have carpet area between 21sqm and 27sqm). Investors will be permitted to exit on completion of the project or after 3 years from the date of final investment, subject to development of trunk infrastructure.

Smaller ticket size to expand addressable market

At the company-specific level, developers like Godrej Properties, Brigade Enterprises and Mahindra Lifespace, who have existing joint development / investment arrangements with foreign investors (APG Group, GIC Singapore and Standard Chartered, respectively), will benefit as their addressable market will expand. Further, developers with large land banks-Sobha Developers, DLF and Jaypee Infratech-will also gain with potential increase in demand for land.

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https://www.edelweiss.in/research/Real-Estate--FDI-Norms-Relaxation-Concrete-Measures;-Sector-Update/27396.html