Policy Perils Keeping India's Realty Industry Static

Bangalore: Amid the economic downturn, it's crisis time once again for India's realty sector. Policy glitches are once again creating roadblocks for the revival of the sector.
Today, the biggest challenge faced by the capital-intensive real estate sector is shortage of funds. Banks, which are the largest and cheapest source of finance, are shying away from lending to real estate companies.
Moreover, bank funding is restricted to project financing (excluding land) and is available to select developers with healthy balance sheets. While non-banking finance companies have exposure to only debt funding, that too at a much higher interest rate, the expensive private equity players are either not deploying their funds or exiting the scene. Even on the foreign direct investment front, there's a dismal scenario, with its share plummeting from eight percent three years ago to three percent now.
The government allows 100 percent foreign direct investment in construction development - such as townships, housing and built-up infrastructure -- through the automatic route.
But some restrictive conditions are proving to be a dampener. These include minimum capitalisation of $10 million in the case of wholly-owned foreign venture, minimum built-up area of 50,000 sq mts, minimum 50 percent project development in five years and lock-in period of three years.
There is a clear case for relaxing the lock-in period to facilitate early exit, as also a reduction in the minimum capitalisation and threshold built-up area. The Ministry of Housing and Urban Poverty Alleviation has already recommended a reduction in the minimum area requirement from 50,000 sq mtrs to 20,000 sq mtrs. The delay in launching real estate investment trusts is further adding to the woes of the fund-starved sector.

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