The real estate sector in India has assumed growing importance with the liberalisation of the economy. The consequent increase in business opportunities and migration of the labour force has in turn, increased the demand for commercial and housing space, especially rental housing. Development in the real estate sector is being influenced by the development in the retail, hospitality and entertainment (e.g. Hotels, resorts, cinema theatres) industries, economic services (e.g. hospitals, schools) and information technologies (IT-enabled services, call centres etc.).
The Indian real estate market is still in its infancy, large unorganised and dominated by a large number of small players, with very few corporate or large players having national presence. The Indian real estate market, as compared to other more developed Asian and Western markets is characterised by smaller size, lower availability of good quality space and higher prices. Supply of urban land is largely controlled by state-owned development bodies like the Delhi Development Authority (DDA) and Housing Boards levying very limited developed space free, which is controlled by a few major players in each city.
- Nature Of Holdings Of - Real Estate In India
Freehold: In the case of freehold property, the land or flat is fully and unconditionally owned.
Leasehold: Leasehold property is property leased to a lessee for a stipulated period by the lessor, where the land ownership rights remain with the lessor, but the right to use the land is with the lessee. The lessee pays lease premium and annual lease rental there under.
Government Lease: The Government is the biggest land owner in the Indian real estate market. Government leasehold properties are usually leased for 30 to 99 years. Construction thereon are further subject to the terms and conditions of the lease and prior permission of the Government authorities.
- Liberalisation In The Real Estate Sector In India
Indian real estate has fairly recently been liberalised by permitting Foreign Direct Investment ("FDI") in this sector, with foreign investors being given an opportunity to exploit the sector’s full potential, for instance by way of investments in hotels resorts, malls, amusement parks, technology parks or township developments
Impact of liberalisation in the Real Estate
- Guidelines For Construction Development Projects
The Union Government, vide Press Note No. 2 of 2005, permitted FDI up to 100% under the automatic route in townships, housing, built-up infrastructure and construction-development projects (which would include housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure), subject to certain guidelines as defined therein.
FDI is permitted subject to the following guidelines:
Minimum area to be developed under each project would be as below:
In case of development of serviced housing plots, a minimum land area of 10 hectares;
In case of construction-development projects, a minimum built-up area of 50,000 sq. mts.; and
In case of a combination project, any one of the above two conditions would suffice.
Minimum capitalization of US$ 10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with Indian partners. Funds to be brought in within six months of commencement of business of the Company.
Original investment not to be repatriated prior to three years from completion of minimum capitalization, unless prior approval of the Foreign Investment Promotion Board ("FIPB") is obtained.
Development of at least 50% of the project within a period of five years from the date of obtaining all statutory clearances.
Undeveloped plots cannot be sold until provision of the requisite infrastructure1 and acquisition of the completion certificate from the concerned local body/service agency.
The project will have to conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/ Municipal/Local Body concerned.
The investor to 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.
- Hotels And Tourism
100% FDI is permitted in Hotels2 and Tourism3 under the automatic route. For foreign technology agreements, automatic approval is granted if: up to 3% of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architects, design, supervision, etc. up to 3% of net turnover is payable for franchising and marketing/publicity support fee, and up to 10% of gross operating profit is payable for management fee, including incentive fee.
- Impact Of Liberalisation In The Real Estate Sector In India
Liberalization in the sector and the relaxation of the FDI ceiling saw big names like Dubai-based Emmar Properties - the largest listed real estate developer in the world - joining hands with the Delhi-based MGF Developments to announce India’s largest FDI in the realty sector amounting to over US$ 500 million in projects having a capital outlay of US$ 4 billion. Groups also showing interest in India include insurance company American International Group Inc (AIG), High Point Rendel of the UK, Edaw-US, Japan’s Kikken Sekkel, Lee Kim Tah Holdings and Cesma International from Singapore.
The development of real estate in India focuses on two primary areas: retail and residential: A global real-estate consulting group has reportedly ranked India as 5th in the list of 30 emerging retail markets and predicted an impressive 20 per cent growth rate for the organised retail segment by 2010.
The organised segment is expected to grow from a mere 2% to 20% by the end of the decade.
- Key Trends Of The Real Estate Boom In India
A report on real estate trends by a leading global investment bank predicted that the number of malls in Mumbai, Bangalore, New Delhi, Hyderabad and Pune was expected to grow to about 250 by 2010 as against the present 40.
As the competition in the market is intense, builders are apparently going out of their way to be different. Specialised malls have become the order of the day. Gurgaon, on the suburbs of New Delhi will soon have an auto mall, while Bangalore is about to get a mall exclusively selling furniture. Gurgaon is set to get the biggest mall in the world - a large US$ 89.78 sq ft sprawling property that is being developed by a leading Indian real estate company.
Similarly in the home segment, which is driven by the availability of easy home finance, most builders are trying to woo investors with interesting features, each more tempting than the last. Closed-circuit television and earthquake proofing are expected as standard features in most upmarket blocks.
1. roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable under prescribed regulations.
2. "Hotels" includes restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists.
3. "Tourism related industry" includes travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wildlife experiences to tourists, surface, air and water transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for tourists and Convention/Seminar units and organizations.
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