FDI IN REAL ESTATE BUSINESS & CONSTRUCTION DEVELOPMENT SECTOR
FDI IN REAL ESTATE BUSINESS & CONSTRUCTION DEVELOPMENT SECTOR
FDI is not permitted in an entity which is engaged or proposes to engage in real estate business, construction of farm houses and trading in Transferable Development Rights (TDRs).[1] For this purpose of FDI investment in real estate business, the term “Real Estate Business” means dealing in land and immovable property with a view to earning profit or earning income therefrom and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.[2]
As per Notification No. FEMA 136/2005-RB dated July 19, 2005, only NRIs/OCBs are allowed to invest in certain specific areas of real estate as listed below to the extent of 100%[3]:
- Development of serviced plots and construction of built-up residential premises;
- Investment in real estate covering construction of residential and commercial premises including business centres and office;
- Development of townships;
- City and regional level urban infrastructure facilities, including both roads and bridges;
- Investment in manufacture of building materials;
- Investment in participatory ventures in (a) to (e) above, and
- Investment in Housing finance institutions which is also opened to FDI as an NBFC
However, on October 29, 2014, Narendra Modi government relaxed rules for FDI in the construction sector by reducing minimum built-up area as well as capital requirement and easing the exit norms. Some of the key changes, introduced by the Press Release on Review of Foreign Direct Investment policy on the Construction Development Sector dated October 29, 2014 are as follows-
100 percent FDI under automatic route will be permitted in the construction development sector subject to the certain conditions, including, inter alia–
A. Minimum Floor Area[4]: Minimum area to be developed under each project would be as follows:
| Development of serviced plots | No condition of minimum land[5] |
| Construction-development projects | A minimum floor area of 20,000 sq. meters[6] |
| Combination project | Any one of the aforestated two conditions |
B. Capital Requirement: The investee company will be required to bring minimum FDI of US$ 5 million[7] within six months of commencement of the project.[8] Subsequent tranches of FDI can be brought till the period of ten years from the commencement of the project or before the completion of the project, whichever expires earlier.
C. Exit Condition: Although the Cabinet has not reduced the 3-year lock-in period for foreign investors, it has permitted them to exit on completion of the project or after three years from the date of final investment, subject to development of trunk infrastructure.
…
F. Selling of Developed Plots: The Indian investee company will be permitted to sell only Developed Plots.[9]
Exceptions: It is to be noted that the conditions specified in (A) to (C) above, will not apply to hotels and tourist resorts; hospitals; Special Economic Zones (SEZs); educational institutions, old age homes and investment by NRIs. Similarly, the conditions at (A) and (B) above, will also not apply to the investee/joint venture companies which commit at least 30 percent of the total project cost for low-cost affordable housing.
Secondly, 100% FDI under the automatic route is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres.[10]
[1] http://rbi.org.in/Scripts/NotificationUser.aspx?Id=1438&Mode=0
[2] FEMA Notification No. 1/2000-RB dated May 03, 2000 read with RBI Master Circular that is dealing in land and immovable property.
[3] http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=1437
[4] ‘Floor Area’ is to be defined as per the local laws/regulations of the respective State governments/Union territories.
[5] Earlier the condition of minimum land for development of service plots was 10 hectares.
[6] Earlier the requirement was 50,000 sq meters of built-up area.
[7] The capital requirement was decreased from $10 million to $5 million.
[8] The commencement of the project will be the date of approval of the building plan/lay out plan by the relevant statutory authority.
[9] “Developed Plots” will mean plots where trunk infrastructure including roads, water supply, street lighting, drainage and sewerage, have been made available.
[10] Completion of the project is to be determined as per the local bye-laws/ rules and other regulations of State Governments