Experts are hoping foreign investment will help the sector recover from a couple of years of sluggish growth.

Two months ago, the announcement that a foreign funding institution will invest Rs. 220 crore in a housing project in Chennai created quite a buzz in the construction industry that was just recovering from a year or two of sluggish growth.

The overseas funding institution was Singapore-based GIC Private and the developer, Jain Housing and Construction Limited. “The funding cost is marginally lesserwer than borrowing from Indian financial institutions,” explains Sandeep Mehta, managing director of Jain Housing, which received the funding for its multi-storey, high-end residential projects on Rajiv Gandhi Salai (Old Mamallapuram Road).

He makes it clear that the funding is only for the project and not for the purchase of land. Analysts in the industry consider this transaction as a good start to 2015 that has been pegged as a year of recovery. They are optimistic that similar deals will follow, with the Centre easing norms for FDI in the construction sector.

“As real estate is a very capital-intensive industry, in the absence of alternative instruments, FDI is the option to raise capital,” says Kanchana Krishnan, director, Chennai, Knight Frank India. She adds that it will bring in a competitive environment for both Indian and foreign investors. With the recent decision of the Union Cabinet to approve amendments to the Real Estate Bill, investor confidence will also increase significantly, Ms. Kanchana says.

On the advantages of FDI in the realty sector, Sanjay Chugh, national head of mandated sales and business head, Jones Lang LaSalle, Chennai, says the return on investment for a fund in India is higher than most other countries. “As the economy picks up momentum, demand for housing is bound to rise with home loan interest rates being reduced at regular intervals,” he adds.

FDI allows overseas institutions to fund the construction of residential, commercial and office space projects in the country

As per prevailing norms, the Government of India has allowed 100 per cent investment on FDI in the construction of townships, built-up infrastructure and construction development projects, subject to guidelines as spelt out under the notification of Foreign Exchange Management Act.