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FDI Investments
Earlier, Foreign Direct Investments in the real estate was
restricted to development of industrial parks, hotels, integrated townships
and SEZ's. But on March 3, 2005, the Government of India replaced the
integrated township policy to permit Foreign Direct Investments upto 100% in
townships, housing, built-up infrastructure & construction - development
projects, under automatic route (Press Note 2 (2005 series)). This amendment
broadened the scope of FDI in Indian real estate arena & opened path
towards investments in :
- Townships
- Housing
- Commercial Premises
- Hotels
- Resorts
- Hospitals
- Industrial parks
- Educational Institutions
- Recreational Facilities
- SEZ's, etc
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Further, it was ensured that FDI backed
projects would be accorded national treatment at par with local developers.
The State Government's/ Municipal bodies now approve projects for
construction-development involving foreign investment.
FDI in Real Estate - Aspects to be considered
With the increasing foreign direct investments in the
real-estate business, minimum built up area in case of
construction-development projects - super built up area or covered (carpet)
area may be governed by local regulations which is typically based by Floor
Space Index (FSI)/ Floor Area Ratio (FAR)
The requirement of minimum land area of 25 acres is only for projects where
land developed with provision of common facilities & infrastructure for
subsequent sale as plots for independent housing i.e serviced housing plots.
By implication, for 'constructed housing', criteria of minimum built up area
of 50,000 sq mtrs should apply.
The minimum capitalization requirement of US$ 5 million, i.e.,
capitalization requirement for JV company or minimum capital contribution by
foreign investor refers to capital to be brought in by the foreign investor
in the JV Company.
FDI in Industrial Parks and Hotels & Tourism
Investment by foreign directs in Indian industrial parks, hotels &
tourism hold the following the aspects:
Industrial Park
- FDI upto 100% permitted under automatic route in Industrial Parks
(ie Technology Parks, Biotech Parks), approved by State Government
- Approval from Department of Industrial Policy & Promotion
under Industrial Park Scheme, 2002 is only for availing 100% tax
holiday
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Hotels & Tourism
- 100% FDI permitted in Hotels & Tourism under automatic route
- FDI in Hotels should not be governed by Press Note 2 (2005
series), clarification still awaited on the issue.
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FDI in Special Economic Zone (SEZ)
Cent percent investment is permitted under automatic route for setting up
of SEZs. The SEZ Bill, 2005 passed by Parliament and is awaiting President's
assent. This bill:
- Provides single window approval mechanism for developers &
units in SEZs
- Provides fiscal concessions for SEZ units/ developers - exemption
from customs duty, excise, cess, service tax, income tax, stamp duty
(under Indian Stamp Act, 1899), etc.
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Moreover, the bill is expected to trigger
significant inflow of funds in infrastructure, increase production capacity
and creation of new employment opportunities in the Indian economy.
FDI in Construction & Development
The State Government's/ Municipal bodies will now approve projects for
construction-development involving foreign investment. These projects,
backed by FDI, will be accorded national treatment at par with local
developers. The various criteria & conditions governing these
investments are:
Criteria for Development
- Minimum 10 hectares/ 25 acres area to be developed for serviced
housing plots
- For construction-development projects, minimum built-up area of
50,000 sq mts prescribed
- In case of a combination project, any one of above two conditions
would suffice
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Conditions for Investment
- Minimum capitalization of US$ 10 million for wholly owned
subsidiaries US$ 5 million for joint ventures with Indian partners
- Funds to be brought in within 6 months of commencement of
business
- Original investment cannot be repatriated before a period of 3
years from completion of minimum capitalization. Investor may be
permitted to exit earlier with prior Government approval
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Other Conditions
- At least 50% of project must be developed within of 5 years from
date of obtaining all statutory clearances
- Project to conform with norms & standards laid down by
respective State authorities
- Investor is responsible for obtaining all necessary approvals as
prescribed under applicable rules/bye-Laws/regulations of the State
- Concerned Authority will monitor compliance of prescribed
conditions by developer.
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The active participation of FDI's in the
Indian real estate industry has propelled an extensive growth &
expansion of the industry, leading to a boom in the real estate investment.
Further, enhancing Indian infrastructure & providing a sustainable
growth.
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