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FOREIGN DIRECT INVESTMENT (FDI) in India:

India is currently one of the fastest growing economies in the World with GDP growing at 9.1% in April 2006 - September 2006 (GDP growth in Apr 2005-Mar 2006: 9.0%). 100% Foreign Direct Investment is allowed on automatic basis in most of the sectors . The Common Minimum Programme of the government states that "FDI will continue to be encouraged and proactively sought particularly in areas of infrastructure, technology and exports where local assets and employment are generated on a significant scale. The country needs and can easily absorb at least two to three times the present level of FDI inflows".

Government of India has recently permitted Non Resident Indians (NRIs) to invest upto 100% (FDI) in Housing and Indian Real Estate Sector. Non Resident Indians (NRIs) are allowed to invest in the following realty segments in the Housing and Real Estate Sector under the Automatic Route of FDI:

  1. Investment in real estate covering construction of residential and commercial premises including business centers and offices.
  2. Development of services plots and construction of built up residential premises.
  3. Hotel, Resorts, Development
  4. Township development
  5. City and regional level urban infrastructure facilities, including both bridges and roads.
  6. Investment in manufacture of building materials.
  7. Investment in participatory ventures in (i) to (v) above
  8. Investment in housing finance institutions.
  9. Special Economic Zones (SEZ's)

Also, it is not required to take prior approval from the Government, but the RBI should be informed within thirty days of the inward remittances or issue of shares to NRI. Opening up of 100% Foreign Direct Investment (FDI) in the real estate sector, there are certain reforms have been initiated by Government like setting up real estate mutual funds coupled with other fiscal reforms like rationalization of stamp duty, property taxes etc. in order to make the real estate a promising investment option. The directional flow of FDI into manufacturing and export of goods and services is contributing immensely to India's export efforts.

As per the FDI policies, until now, only Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were allowed to make investment in the housing and the real estate sectors. Foreign investors other than NRIs were permitted to make investment only in development of integrated townships and settlements either through a wholly owned subsidiary or through a joint venture company in India along with a local partner.

High growth path of Indian Real estate
In 2003-04, India acheived total FDI inflow of US$ 2.70 billion, of which only 4.5% was entitled to real estate sector. In 2004-05 this improved to US$ 3.75 billion of which, the real estate shares was 10.6%.

However, in 2005-06, while total FDIs in India were predicted at US$ 5.46 billion, the real estate share in them was around 16%. The Study, however projects that in 2006-07, total FDIs will stroke about US$ 8 billion in which the real estate share is estimated to be about 26.5%.

Guidelines for FDI application in Indian real estate
The Government of India has set up certain guidelines for investors willing to apply in FDI in real estate, which has conditions like area, investment options and target for completion of a project.

The FDI in the above-mentioned areas is subject to the following conditions:

1.   Minimum area to be developed under each project would be as under:

  • In case of development of serviced housing plots, a minimum land area of 10 hectares (25 acres).
  • In case of construction-development projects, a minimum built-up area of 50,000 sq.mts
  • In case of a combination project, any one of the above two conditions would suffice.
2.   The investment would further be subject to the following conditions:
  • Minimum capitalization
    • for wholly owned subsidiaries - US$ 10 million
    • for JV with Indian partners - US$ 5 million-, to be brought in within 6 months of commencement of business
  • Original investment cannot be repatriated before three years from completion of minimum capitalization
  • The investor may be permitted to exit earlier with prior approval of the Government through the Foreign Investment Promotion Board (FIPB).
3.   Time frame & rules
  • A minimum of 50 per cent of the project must be developed within a period of five years from the date of obtaining all statutory clearances.
  • The inventor can not sell undeveloped plots. The term undeveloped plots means, where roads, water supply, street lighting, drainage, sewerage and other conveniences, as applicable under prescribed regulations, have not been made available.
  • In order to dispose off serviced housing plots, it is mandatory that the investor provides this infrastructure and acquire the completion certificate from the concerned local body/service agency.
4.   The development should be in accordance with local byelaws, standards, town planning norms and master plans.

5.   The investor shall be responsible for obtaining all necessary approvals, including those of the developing internal and peripheral areas and other infrastructure facilities, building/layout plans, payment of development, external development and other charges and complying with all other requirements as given under applicable rules/bye-laws/regulations of the State Government/Municipal/Local Body concerned.

The Foreign Exchange Management Act (FEMA), 1999 is the gateway legislation of India for inbound investments of foreigners into India. The Income Tax Act, 1961 is the direct tax legislation of India.
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