By Accommodation Times News Service
By Avikshit Moral, Partner, Juris Corp (Advocates and Solicitors)
By Neha Thakkar, Associate, Juris Corp (Advocates and Solicitors)
The construction development sector of India has imperceptibly striving to convert itself into an organised sector. Recently, the Indian real estate sector has benefitted from the strong economic growth, one of the driving factors of which is Foreign Direct Investment (FDI). The government has time and again taken steps to encourage foreign funds keeps flowing into this sector by creating a favourable policy regime and a strong business environment. Currently, the real estate sector contributes to 6% of the GDP. In order to fuel the growth of construction sector and quench the need for housing in India, the Indian government has taken many initiatives in recent years such as relaxing FDI norms.
The Indian construction and development sector permitted 100% FDI in the year 2005, which had led to a boom in investment and developmental activities thereafter. According to DIPP, total FDI inflow in construction development sector (including townships, housing, built-up infrastructure) from the period starting April 2000 to September 2015 has been around US$ 24.16 billion which is about 9% of total FDI inflows (in tate sector contributes to 6% of the GDP. In order to fuel the growth of construction sector and quench the need for housing in India, the Indian government has taken many initiatives in recent years such as relaxing FDI norms.terms of UD$) from April 2000 to September 2015.
Considering the fact that India has a huge population and migration of people from rural to urban areas is on a rise, the concept of affordable housing becomes very essential. Also, the Real Estate sector of India, in recent times has witnessed high growth with the rise in demand for office as well as residential spaces.
In general, affordable housing refers to housing units which are affordably priced with respect to household that falls within a specific limited income range. The main purpose of affordable housing is to address the housing needs of the lower or middle income households. In a developing country like India, it is a major concern as the majority of the population is not able to buy houses at market prices. To determine the affordability of a home, three broad parameters can be looked upon, namely, (1) the monthly income of prospective buyers, (2) the size of the home and (3) its price. The government of India has taken various measures to meet the increased demand for affordable housing by stressing on public- private partnerships (PPP) for development of these units.
The government has realized that the housing sector is a critical component of the real estate sector as well as the economy hence the recent budget has had various provisions to support the growth of housing, especially affordable housing. The 2016 Budget focussed on affordable housing by providing incentives for both developers as well as first time buyers. The government has announced 100% deduction on profits earned by persons engaged in projects for building up to 30 sq. metres (323 sq. feet approx..) in four metro cities and up to 60 sq. metres (646 sq. feet approx.) in other cities provided these are approved from June 2016 to March 2019 and completed in 3 years. The government has provided for an exemption from the service tax for construction of affordable houses up to 60 sq. metres under any scheme of the central or state government including PPP schemes. In furtherance of the goal of ‘Housing for All’, it is proposed to incentivize first- home buyers availing home loans, by providing additional deduction in respect of interest on loan taken for residential house property from any financial institution up to INR 50,000/- This incentive is proposed to be extended to a house property of a value less than INR 50, 00,000/- in respect of which a loan of an amount not exceeding INR 35, 00,000/- has been sanctioned. It is also proposed to extend the benefit of deduction till the repayment of loan continues.eased demand for affordable housing by stressing on public- private partnerships (PPP) for development of these units.
Moving back in the year 2015, the government relaxed Foreign Direct Investment (FDI) norms in the construction sector by removing two major conditions related to ‘minimum built up area’ and ‘capital requirement.’ Earlier the proposal for repatriation of foreign investment or transfer of stake from one non-resident to another non-resident investor used to be considered by FIPB (Foreign Investment Promotion Board) on case to case basis. But now, the transfer of stake from one non-resident to another non-resident without repatriation will not be subject to any lock in period or government approval. The foreign investors will be permittedto exit and repatriate foreign investment before the completion of project under automatic route subject to a lock in period of three years which means that exit is permitted at any time if project or trunk infrastructure is completed before the lock-in period. It is clarified that 100% FDI under automatic route is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres. To encourage the development of affordable homes, the government exempted the conditions of minimum floor area as well as capital requirement if an investee/joint venture companies commit at least 30 per cent of the total project cost for low-cost housing. Also, a new tax structure for real estate and infrastructure investment has been given pass- through status in the form of Real Estate Investment Trust and Infrastructure Investment Trust.
The government of India, by relaxing FDI norms, introducing Real Estate (Regulation and Development) Bill, establishing REITs, Smart city projects etc. has aimed to attract more investors to improve the economic standing of the real estate investment market. By doing so, the govt. is stepping closer to achieving its goal of affordable housing.