FDI Leeway For Projects In Hospitality And Tourism

In yet another move to ease the foreign direct investment (FDI) guideline for real estate, the department of industrial policy & promotion (DIPP) has proposed that minimum capitalisation norms be waived for some projects in hospitality and tourism.  

In a note drafted for the Cabinet Committee on Economic Affairs (CCEA), the DIPP, which also handles the FDI policy, has said the minimum capitalisation norms specified in Press Note 2 can be waived in the case of projects involving hospitality and tourism facilities such as hotels, restaurants or entertainment facilities. Press Note 5 specifies that minimum capitalisation should be $5 million for permitting FDI in realty projects which involve an Indian partner. However, for a fully-owned subsidiary of an overseas firm the minimum capitalisation is $10 million. The waiver would be available to projects where half the built-up area is devoted to hotel and tourism businesses like food courts, resorts, restaurants, or if 20% of the total built-up area is used for hotel rooms.  

The DIPP has also proposed that FDI should be allowed to flow into smaller realty projects covering only 10 acres. As of now, FDI is allowed in realty projects only if the minimum area covered is 25 acres (or 10 hectares). The move will help realty projects in metros like Mumbai, Delhi, Bangalore, Chennai and Hyderabad attract FDI.

Realty players say that it is not possible to find 25 acres of land in these cities to make their projects comply with Press Note 2 of 2005, which defines guidelines for permitting FDI in this sector. The industry is keen on business in the metros as it attracts high-profile customers, but wants FDI to be allowed since the cost of land in these cities is high, making them expensive.

Veterans in the real estate business who do not want to be identified said the liberalisation moves were welcome. These steps, when implemented, will provide relief to high-value projects in metros and projects being developed for the tourism sector. The move comes as a relief at a time when realty players are struggling to managed debt and lull in business, they added.

However, the realty industry is upset that its demand for waiving off the three-year lock-in for FDI in real estate has not been accepted. Many fund houses keep off realty projects due to the threeyear lock-in period, industry players feel.