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A guide to real estate foreign direct investments in India
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A guide to real estate foreign direct investments in India

By Harshvardhan Sharan·June 1st, 2022

FDI (Foreign Direct Investments) has geared up a lot these days in the real estate sector. With NRIs buying properties in cities like Bangalore and big foreign companies bagging deals worth crores of rupees in Hyderabad, to build commercial complexes and data centres, FDI is benefiting the industry and the economy in various ways.

Here we are going to give a brief overview of this investment type and take you through some basic guidelines related to it.

What is FDI?

Foreign Direct Investment is controlling a business based in a country, by an entity/business/firm in another country. It is thus distinguished by a foreign portfolio than a notion of direct control. It doesn't matter what the investment's origin is since it is an FDI: either it's made in the target country inorganically by buying a company there or it's organically by expanding the operations of an existing business there.

If an investor owns stock in a foreign firm, establishes foreign operations, purchases assets of that firm, or controls a significant interest in it, that is FDI. FDI is generally made in the countries that have skilled workforce and technology so that the investment brings profits through new ideas and efficiency.

FDI in India:

FDI is the most beneficial aspect in developing economic countries like India. Also, India’s main source of economic growth is FDI. It is also a non-debt resource for the economy. India’s Governmental policies and favourable business environment have largely attracted FDI in the country.

Moreover, FDI was introduced by the FEMA (Foreign Exchange Management Act) in the year 1991. The most important areas where FDIs are attracted in the country are telecommunications, construction, and software. FDI has advantages that can prosper India. Plus with the growing FDIs in India, below are the following developments that can take place-

Rise of new technologies -

Through FDI, it is possible to introduce the latest technologies that have never been available in the country before. Satellites in the country simplified communication and opened new lines of communication, resulting in the growth and development of the country.

Increase in capital inflow -

FDIs bridge the gap between capital and material in the country by being active in the core sectors like real estate. This results in more capital wealth.

Increased employment opportunities-

In developing nations, an increase in FDIs leads to a boost in the services and manufacturing sectors. This obviously opens a lot of employment opportunities, rising the country’s purchasing power.

FDI enhances the country’s finance and development sector -

The process of FDI is robust. It provides the country with various useful tools that can efficiently manage, finance, operations, and manufacture the recipient businesses. These innovations and processes get assimilated into local economies over time, which enables the fintech industry to become more effective and efficient.

Basic guidelines of FDI in real estate :

In accordance with the new guidelines of FDI, the Department of Industrial Property and Promotion permits 100% foreign investment in townships, housing, built-up infrastructure, and development projects (including, but not limited to, residential, commercial, hotel, resort, hospital, educational, recreational, and infrastructure facilities at the city and regional levels such as roads, bridges, and transit), subject to the following guidelines:

  • A minimum of 10 hectares of land is required for building serviced housing plots. For the development of construction projects, a built-up area of 50,000 sqm is allowed, and for the construction of both of the above projects, any one of the above conditions would suffice.
  • Investment must obtain all required approvals, including approvals for the building/layout plans, development of internal and peripheral areas, and other infrastructure facilities, and payment of development, external development, and other charges. prescribed under applicable rules/bye-laws/regulations of the State Government / Municipal Body / Local Body concerned.
  • The project shall abide by all the norms including community amenities, facilities, etc. according to the applicable building control regulations, and laws by the State Government, and Municipal Government of the local body.
  • At least 50% of the project should be completed in 5 yrs from the date of getting all the clearances. The developer should not deliver incomplete constructions to the customer ( underdeveloped connotes, where roads, water supply, street lighting, drainage, sewerage, and other conveniences as applicable under prescribed regulations, have not been made available). This infrastructure must be built and completed by the investor before he or she can sell the serviced housing plots to the local body or agency.
  • Investors cannot repatriate the original investment before the completion of minimum capitalization, which is three years. Foreign Investment Promotion Board (FIPB) approval may nonetheless permit the investor to exit earlier with prior approval of the Government.
  • Joint ventures and wholly-owned subsidiaries should have a minimum capitalization of US$ 5 million and US$ 10 million respectively. Company funds must be brought within six months of the business commencement.
  • The State Government / Municipal / Local Body that approves a building or development plan is responsible for ensuring that the developer complies with the above conditions.

The new real estate acts like RERA and FEMA prior to it, have fastened the rules and regulations in the real estate sector. These acts have increased transparency and scope in the industry, thus attracting more FDIs.

FDIs in India have noticeably taken a leap. This surely is going to benefit the country in the long run, in terms of economic growth, globalization, and liberalization.

Author avatar
Harshvardhan SharanInvestment Associate

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