Is FDI Allowed in Real Estate in India?

One of the most globally recognized sectors- the estate sector mainly comprises housing, retail, hospitality, and commercial. The estate sector in India is expected to reach a market size of US $1 trillion by the year 2030 and contribute about 13 per cent of the country’s totally Gross Domestic Product (GDP) by 2025.

Almost 80 per cent of real estate in India is residential space, while the rest encompasses office space, shopping malls, hotels, and hospitals. Right after the agricultural sector, this sector is the second largest employment generator in India.

Real estate in the country endures to grow. As per estimates, there is a pressing demand for 66 million square feet of IT (Information Technology) space for the next few years. Also, India continues to be a hub for multinational companies who take advantage of lower wages and skilled manpower.

Earlier Foreign direct investment in the real sector was not allowed in India, except for non- resident Indians and overseas corporate bodies. It was only in 2005 that the Reserve Bank of India opened up the real estate sector for 100 per cent FDI governed by certain terms and conditions in the township, housing, built- up infrastructure, and construction development project sector.

After experiencing low FDI equity inflows in the sector during the period of 2009- 2013, the government took the decision to relax these terms and conditions, in order to attract more foreign investment in the sector.

More recently, in a further relaxation, in 2018 the cabinet decided to relax FDI policies by permitting 100 per cent FDI under the automatic route in the construction development segment, which included townships, housing, built- up infrastructure, and real- estate broking services.

If you are confused about real estate broking service, it was clarified that real estate broking services don’t amount to real estate business and is, hence, eligible for 100 per cent foreign direct investment under the automatic route.

Foreign direct investment in subject to certain guidelines, which are as follows:

1. The minimum area to be developed under each project would be as follows:

a) In case of development of serviced housing plots, a minimum land area of 10 hectares.

b) In case of construction development projects, a minimum built-up area of 50,000 sq.mts.

c) In case of a combination of the above two projects, any one of the above two conditions would suffice.

2. The minimum capitalization norm shall be US$ 10 million for a wholly owned subsidiary and US$ 5 million for joint ventures with Indian partner/s. The funds would have to be brought in within six months of commencement of business of the company.

3. Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. However, the investor may be permitted to exit earlier with prior approval of the Government through the Foreign Investment Promotion Board (FIPB).

4. Development of at least 50% of the integrated project has to be completed within a period of five years from the date of obtaining all statutory clearances. The investor would not be permitted to sell underdeveloped plots (underdeveloped connotes, where roads, water supply, street lighting, drainage, sewerage and other conveniences as applicable under prescribed regulations, have not been made available). The investor must provide this infrastructure and obtain the completion certificate from the concerned local body/service agency before being allowed to dispose of the serviced housing plots.

5. The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities as laid down in the applicable building control regulations, by-laws, rules and other regulations of the State Government / Municipal / Local Body concerned.

6. The investor shall be responsible for obtaining all necessary approvals, including those of the building / layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements, as prescribed under applicable rules/bye-laws/regulations of the State Government / Municipal Body / Local Body concerned.

7. The State Government / Municipal / Local Body concerned, which approves the building / development plans, will monitor the developer’s compliance to the above conditions.