Real Estate - Government Notifies Relaxed FDI Norms; Sector Update:: Edelweiss

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The government has notified relaxed FDI norms for the real estate sector with tweaks (easing of affordable housing definition and lock-in period) to the earlier announcement. The norms had been announced in Budget 2014-15 and the Union government had given its nod on October 30, 2014. Post notification, key provisions applicable are: minimum investment of USD5mn and built up area of 20,000sqm and no minimum area and minimum capital requirements on serviced plots and affordable housing. We perceive this development as positive for developers with existing joint development / investment arrangements with foreign investors 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 benefit from the relaxation, we believe the gain will be curtailed by overall weakness in the NCR market.

What’s new? Easing of affordable housing definition, lock-in period

The government has notified relaxed FDI norms for real estate with tweaks (easing of affordable housing definition and lock-in period) to the earlier announcement. While 100% FDI was always permitted, the norms have been relaxed considerably now. Key provisions are minimum investment of USD5mn (USD10mn earlier) and built up area of 20,000sqm (50,000sqm earlier). 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 40% houses have carpet area of less than 140sqm (25% of which should be below 60sqm)). Investors will be permitted to exit on completion of a project or after completion of development of trunk infrastructure.

Smaller ticket size to expand addressable market

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 as well as ease in FDI for plotted developments.

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https://www.edelweiss.in/research/Real-Estate--Government-Notifies-Relaxed-FDI-Norms;-Sector-Update/27760.html