Zoom: Real estate, construction shares up as new FDI rules seen boosting fund flow

Real estate and construction companies are finally heaving a sigh of relief after the government relaxed FDI norms for the sector yesterday.

In its bid to attract more capital into the sector, the government reduced the minimum built-up area as well as capital requirement and also eased rules governing exit from projects.

The minimum floor area for getting foreign funds has been cut to 20,000 sq mt from 50,000 sq mt. The minimum capital requirement now stands at $5 million as against $10 million earlier.

“These measures are expected to result in enhanced inflows into the construction development sector… It is likely to attract investments in new areas and encourage development of plots for serviced housing given the shortage of land in and around urban agglomerations as well as the high cost of land,” the government statement said.

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The amendment of the norms will be bring in more money into a sector, which has witnessed a depletion of FDI flow ovwer the last couple of years.

Reacting to the development, construction and real estate shares have risen on the BSE. Shares of Unitech rose 0.8 percent, DLF 0.9 percent and Sobha Developers 2.7 percent.

Meanwhile, Hindustan Construction Company rose 2.7 percent and NCC 1.1 percent.

Investors expect more fund flow to fast track the ongoing projects that are now stuck due to want of funds. Once the projects start moving, the companies will also be able to get enough funds to cut their heavy debt, which has been a drag on them.

With inputs from agencies