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Government plan for FDI in housing rattles domestic players

The urban affairs and employment ministry has circulated a note to the Union Cabinet for its approval for introduction of foreign direct investment in the housing sector, especially in the development of real estate.

The note has been prepared in consultation with the finance and industry ministries.

Urban Affairs and Employment Minister Ram Jethmalani is understood to have stressed 100 per cent equity participation by non-resident Indians, persons of Indian origin and multinational corporations in the housing and real estate to develop this basic infrastructure industry in the country.

Alternatives have also been suggested based on demands from domestic building and construction industries which are insisting on lesser equity by foreign investors and higher equity by domestic partners.

The argument of the domestic housing industry is against competition from foreign players for fear of being wiped out.

Informed sources said the government was in favour of opening up the housing sector for FDI subject to the condition that at least ten per cent of the project should be earmarked for meeting the housing needs of the economically weaker sections.

Alternatively, the foreign investors could be asked to spend ten per cent of the gross capital proposed to be invested in a shelter fund. It has been recommended that the amount so invested be returned after five years without paying any interest.

According to reports, the proposal sought to permit FDI in the sector with a lock-in period of three years on the capital. However, there will be no such restrictions or cap on repatriation of dividend.

Media reports said the government's proposal envisaged approval for individual foreign investors also.

Officially, the proposal for FDI in the housing sector was being justified on the ground that the domestic industry was not in a position to face competition as there were instances where it had exploited the ''gullible'' middle class, with many of the customers being deprived of their life-long earnings. There were also cases where a customer had found little satisfaction in terms of quality, durability, lay-out design and other related infrastructure facilities.

The sources said the domestic industry was not in favour of foreign players having majority stake in the equity.

The sources said Jethmalani was firmly in favour 100 per cent equity participation in the sector by the foreign investors so that the result would be improved quality in terms of durability, longevity, better facilities and satisfaction to the house-owners.

The minister felt that competition would also help the domestic industry improve the quality. The proposal would come up before the Cabinet next week for discussion.

Under the new Housing and Habitat Policy-1998, two million houses are to be built annually for economically weaker and low-income groups. In addition, people in middle- and high-income groups, who would like to have their houses in mega cities with attendant infrastructure facilities, will be benefitted by the proposed FDI policy.

The sources said foreign investors would take care of housing in keeping with worldwide standards, environmental issues in settlement, sustainable development and energy efficiency in the houses so built.

The government, on its part, would help in the legal reforms and streamlining processes and introduction of transparency.

Official sources said there will be focus on public and private partnership for catalysing development in basic infrastructure of housing. The scheme will be liberal and simpler in approval. Overseas corporate bodies, MNCs and NRIs holding 60 per cent stake can also invest, as per the proposed FDI policy.

According to the National Sample Survey Organisation as on 1997, the shortage of housing in urban areas is 7.57 million houses or 36 per cent. In the rural areas, the shortage is 13.66 million houses or 64 per cent.

Whereas the availability of houses in rural areas is 108.7 million houses and 39.3 million in urban areas.

Total urban population coverage in terms of protected water supply is 84 per cent, sewerage and sanitation 49 per cent and refuse collection and disposal 72 per cent and electrification 75 per cent. The sources said this shows that the existing urban infrastructure facilities are deficient. The deficiency in infrastructure development is being sought to be wiped out with the availability of FDI investment.

UNI