NEW DELHI: Though most big ticket real estate developers are bullish about foreign investments in the sector, they are apprehensive that if the area cap for a project to be FDI-compliant is reduced to proposed limits, a large scale demand for land in Tier II and Tier III cities may be triggered, leading to further escalation of land prices.

According to a proposal, the government is planning to significantly ease entry barriers. If implemented, a project will be FDI-compliant only for 10 acre in residential and 10,000 sq metres in commercial. Interestingly, real estate funds and local developers are divided over the impact of this move. “FDI is most welcome.

But if barriers are diluted so much, many small foreign players will also be in a position to invest, which may put local developers against unfair competition,” points out Kamal Taneja, managing director, TDI group.

Many real estate developers feel that with this move, land prices in Tier II and Tier III cities will grow in leaps and bounds. According to Rajan Ahuja, director, Realty Verticals, a Gurgaon-based consultancy, “Smaller cities have seen lot of action in recent times. 

If cash rich foreign companies get a chance to pick up land even at Rs 1 crore per acre in a smaller city, they won’t mind.” Analysts note that there will be a definite step-up in volume of FDI flow into the country if this move comes about. “It would enable many mid-size real estate funds — in the $100-$200 range — to enter the Indian market,” noted Anuj Puri of real estate consultancy TrammellCrowMeghraj.

Industry players said till now, large size funds upwards of $200m have been knocking on the doors of Indian real estate sector. “The move will enable FDI to percolate down to smaller towns and cities. This will help these markets to grow organically, while raising the quality bar of real estate assets on offer,” points out Ankur Srivastava, managing director, DTZ, international property advisors. Some developers feel mandatory investment threshold for FDI should also be brought down.

Even as small time developers face the heat of more competition, Rumneek Bawa, CEO, Uppal’s group feels that more FDI influx will only help the industry attain consolidation and maturity.