Desperate for more investment in the hotel sector, the Government is finalising a proposal to offer key concessions to foreign investors in real estate if they agree to construct hotel rooms in the properties they are developing. For this purpose, the Government plans to amend the FDI norms for real estate, which currently do not allow foreign developers to build hotels or resorts in townships, malls or office complexes.

The amended norms would stipulate that foreign investors can utilise 50 per cent of their built-up area to construct hotels or other tourism-related infrastructure like restaurants or offices for tour operators. Foreign companies doing this can avail of special concessions that would include a complete waiver of lock-in period for sale or transfer of property and also restrictions on the minimum size of the plot.

Current FDI norms do not allow a company to invest in real estate on plots below the size of five hectares. They are also not allowed to sell, lease or transfer the property for eight years.

With these two restrictions gone, officials hope that a number of foreign investors would show interest in India’s hotel sector that is reeling under a tremendous shortage of decent rooms.

The amendment in FDI norms is being worked out by the Tourism Ministry, in consultation with the Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce. A draft cabinet note is ready to be moved in the next few days, sources said.

As of now, 100 per cent foreign direct investment is allowed in real estate and also in the hotel sector, but a developer is barred from combining the two. To ensure that the developers actually construct hotel rooms and not just allocate space for restaurants or offices for tour operators, the Tourism Ministry is said to be insisting on a clause that would make it mandatory for the developers to assign a fixed proportion of the area for hotels. The DIPP, on the other hand, is in favour of leaving the provision open-ended. A final decision in this regard is still to be taken, sources said.

... contd.