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Real-ly
Burgeoning FDI
Pursuant
to the Cabinet Committee on Economic Affairs announcing its in-principle
approval for increased Foreign Direct Investments (FDI)
in the real estate sector last month, the Department of Industrial
Policy and Promotion has issued a formal notification, vide Press
Note 2, dated March 3, 2005, implementing this liberalization.
Up
to 100 per cent FDI in townships, housing, built-up infrastructure
and construction-development projects (which would include, but
not be restricted to, housing, commercial premises, hotels, resorts,
hospitals, educational institutions, recreational facilities,
city and regional level infrastructure), would now be permitted
through the automatic route, subject to the following conditions:
- Minimum area to be developed under
each project would be (i) a minimum land area of 10 hectares
in the case of serviced housing plots (against the earlier requirement
of 100 acres); (ii) a minimum built-up area of 50,000 square
meters in the case of construction-development projects (against
the earlier requirement of 2,000 dwelling units) and (iii) in
the case of a combined project, any one of the above two conditions
would suffice.
- Minimum capitalization requirement
of USD 10 million for wholly owned subsidiaries and USD 5 million
for joint ventures with Indian partners. Further, the minimum
capitalization amounts have to be brought into India within
six months of commencement of business.
- Repatriation of original investment
will be permitted only after three years from completion of
minimum capitalization. However, the investor may be permitted
to exit earlier with the prior approval of the Government through
the Foreign Investment Promotion Board.
- A minimum of 50 per cent of the
project has to be developed within 5 years of receipt of all
statutory clearances.
- Sale of undeveloped plots (i.e.
plots where roads, water supply, street lighting, drainage,
sewerage, and other conveniences, as applicable under prescribed
regulations, have not been made available) will not be permitted.
In fact, the foreign investor will be permitted to dispose of
serviced housing plots only upon receipt of completion certificate
from the concerned local body/service agency.
- Conformity with the existing 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 Governments, municipal bodies
and other concerned local bodies.
- Procurement of 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 compliance with all other requirements as prescribed under
applicable by-laws, rules and regulations of the State Governments,
municipal bodies and other concerned local bodies.
The
State Governments, municipal bodies or other concerned local bodies
approving the building / development plans will monitor compliance
of the above conditions by the developer.
While
the tenor of the liberalization appears to be more construction-centric
than land-centric and provides a number of stipulations preempting
speculation in real estate, the move comes as a welcome fillip
to the Indian real estate sector and has heralded announcements
by a number of private equity funds and financial institutions,
including HDFC and ICICI Ventures, of plans to set up structures
for real estate investments through Real Estate Investment Trusts
(REITs) or other REITs products.
With
the announcement of these guidelines, the government has lived
up to the expectations of foreign investors keen on investing
in the Indian real estate sector; a sector which has shown promising
returns over the last few years. This is clearly one of the most
significant liberalizations for foreign investment in recent times
.
Source:
Department of Industrial Policy and Promotion
You
can direct your queries or comments to Siddharth
Shah and Roshan
Thomas
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