NEW DELHI: Easing of investment norms under Foreign Direct Investment (FDI) policy for the real estate sector is more of a long term story, and is unlikely to result in any immediate increase in FDI in the near term, ratings agency Fitch Ratings has said.
The policy, which became effective on November 24, 2015, removes the earlier conditions on minimum investments (of $5 million earlier), minimum area and also eases exit options for FDI investors.
Fitch Ratings said that the Indian real estate sector has been challenged by frequent delays in project completion and a long/complex approval process. "The weak demand in recent times has added to the challenges. With these issues continuing to impact the sector, we believe that investment flows will remain slow and limited to a few selective projects in the next 12 months," it said.
Investment flows in to the real estate sector have slowed down over the last 18 months. FDI in so called construction-development projects fell by over 38% during the year ending March 2015 (FY15) to $758 million compared to $1,226 million in the previous fiscal. The FDI flow has remained weak this year with just $34 million of investments in the first quarter of FY16.
"We expect the investments to pick up over the next two to three years along with the expected improvement in demand in the real estate sector. Furthermore, the easier exit options allowing FDI investors to cash out after a lock-in period of three years without linking them to any execution delays and ability to invest in completed projects may improve the appetite of investors," it said.
Fitch expects FDI investments to reach about $1.