As it’s GDP keeps growing, India is expected to become the world’s second largest economy before 2050. Constantly rising technology exports and domestic consumption from the country’s 300 million middle class and a total population of more than 1 billion, as well as macroeconomic reforms are becoming the key drivers leading to 9% annual growth of India’s $ 1 trillion economy.
Growth in GDP has also brought phenomenal growth in the Real Estate market. In fact, it is predicted that India will be needing around 80 million units of housing over the next 15 years and 61 million square metres (m2) in office space over the next five years, and this, by the country’s IT and business process outsourcing industries alone. India’s Real Estate market is expected to be worth $50bn in 2010, up from $14bn in 2007.
Foreign investment policy reforms and industry growth trends have also significantly contributed to attract foreign investors in the past two years. Overseas funds of about $7bn are already expected for investment in India’s Real Estate. FDI in Real Estate in the country is estimated to reach $16bn by 2012 from just $600m in 2006.
Some evident consequences of all this growth is of course the fast evolution of India’s Real Estate landscape and the transformation of the market that went from a highly fragmented structure lacking of transparency to a planned approach towards urban development, large-scale projects and improving governance standards.
Foreign investors, as in any other country are required to follow a set of guidelines. Depending on the form of investment, for which up to 100% foreign equity is permitted, several steps may be necessary. In any case, it is always recommended to consult a local legal expert in order to become aware of requirements and conditions provided by the country’s legislation.
The estimated time frame for establishment of a foreign Real Estate company in India is about 90 days. At the moment of investing, clear guidelines indicated by the Indian Reserve Bank define the limits and possibilities characterizing investment in this sector as follows:
Sector |
Investment
Cap |
Description of Activity/Items/Conditions |
Townships, housing, built-up infrastructure and construction - development projects. The sector would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure. |
100% |
The investment shall be subject to the following guidelines: |
(a) |
Minimum area to be developed under each project shall be as under : |
|
(i) |
In case of development of serviced housing plots - 10 hectares. |
|
(ii) |
In case of construction -development project -50,000 sq.mtrs. |
|
(iii) |
In case of combination project, any one of the above two conditions. |
(b) |
The investment shall be subject to the following conditions: |
|
(i) |
Minimum capitalization of US $ 10 Million for wholly owned subsidiaries and US $ 5 Million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the Company. |
(ii) |
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 FIPB. |
(c) |
At least 50% of the project must be developed within a period of five years from the date of obtaining all statutory clearances. The investor shall not be permitted to sell undeveloped plots. |
(d) |
The project shall conform to the norms and standards, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/ Municipal/Local Body concerned. |
(e) |
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/ Local Body concerned. |
(f) |
The State Government/Municipal/Local Body concerned, which approves the building/development plans, shall monitor compliance of the above conditions by the developer.
Note: For the purpose of these guidelines, "undeveloped plots" will mean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable under prescribed regulations, have not been made available. It will be necessary that the investor provides this infrastructure and obtains the completion certificate from the concerned local body/service agency before he would be allowed to dispose of serviced housing plots. |
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