In India, Foreign Direct Investment
("FDI") in real estate has been
permitted since 2002 and was fully opened in 2005. Subject to
certain conditions, FDI in the real estate sector is allowed and
encouraged in hotel development, tourism, hospitality, township
development, developing commercial real estate, built-up
infrastructure, housing and construction projects, resorts,
hospitals, educational institutions, recreational facilities,
infrastructural projects at the regional and local levels and
Special Economic Zones (SEZs).
The Government of India ("GoI")
allowed 100% (hundred percent) FDI in the real estate sector but
with strict provisos, including a lock-in period of three years
during which the investment could not be repatriated. However,
pursuant to the Press Release dated October 29, 2014 (the
"Press Release"), issued by the GoI, the
rules pertaining to FDI in real estate have been relaxed and this
has made it much easier for foreigners to invest in real estate in
As per the Press Release, the minimum built area for projects in
which foreign investment is allowed will be reduced to 20,000 sq.
mts. (twenty thousand square metres) from 50,000 sq. mts. (fifty
thousand square metres) and the minimum capital investment by
foreign companies has been halved from $ 10,00,000 (ten million
dollars) to $ 5,00,000 (five million dollars).These relaxations
will result in an increase in mergers and acquisitions and private
equity investments. Also, the minimum land requirement for
'serviced plots' have been removed, as compared to the
earlier requirement of 10 ha (ten hectares).
The revised norms have been announced by the GoI at a time when
the share of construction, housing and real estate segment in total
FDI had further slipped from 5% (five percent) in 2013 to below 3%
(three percent), as of the current fiscal year until August, 2014.
The more lenient rules will help faster completion of projects
delayed by congestion of funds due to elevated debt levels and
boost large scale investment in the sector. They will also
encourage the development of smaller projects in areas where the
availability of land is limited.
Despite this being a welcome change in the sector as it brings
in more capital, the domestic buyers in the country will be
negatively affected to an extent because more foreign money in
realty means higher property prices. So, affordability faces a
downward slope. Along with this, the GoI may permit repatriation of
FDI by one non-resident investor to another non-resident investor
before the completion of a project. This will lead to repatriation
of profits by investors and increase in speculation in the market.
Investors might start trading in properties like they do in stock
and this in turn will make properties more unaffordable for the
Having said that, the real estate sector is a very critical
sector of the Indian economy. After agriculture, real estate
contributes the most to our economy. The main growth thrust is
coming due to favourable demographics, increasing purchasing power,
existence of customer friendly banks and housing finance companies,
professionalism in real estate and favourable reforms initiated by
the GoI to attract global investors.
Originally published on November 6, 2014
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On March 10, 2015, the controversial amendments to the land acquisition law were finally passed by the Lok Sabha after facing severe criticism both from the opposition parties as well as from the government's own allies.
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