Foreign Nationals > Real Estate
Real estate sector in India is booming. Research indicates
an unprecedented growth in the Indian Real Estate market
from the current US$ 14 billion to US$ 102 billion in
the next 10 years. The global real-estate consulting
group Knight Frank has ranked India 5th in the list
of 30 emerging retail markets.
Favourable reforms initiated by the government in real
estate coupled with higher disposable income and increasing
purchasing power are responsible for the real estate
boom in India. Further aiding these are easy housing
loan options from customer banks and housing finance
companies, lower EMIs and rebates under the income tax
act.
Apart from domestic investors who have been investing
in real estate, the opening of the Indian real estate
sector to Foreign Direct Investment (FDI) has lead to
a new type of investor in the Indian real estate marker
– institutional foreign direct investment.
There are various ways of investing in the Indian real
estate market.
Foreign Investors
Although FDI is now allowed in Indian real estate, there are certain requirements and restrictions that are applicable to FDI – the salient points are as follows:
1. FDI is not allowed in agricultural land.
2. FDI must be used for actual construction / development i.e. FDI cannot be used to purchase existing buildings.
3. FDI is not allowed for plotted development i.e. buying a large land parcel and then selling it as multiple smaller plots.
4. The minimum size of any FDI development must be 50,000 square meters of built-up area.
5. The minimum size of investment if the FDI is coming into the country independently of a local Indian partner is US10million. If the FDI is tying up with an Indian partner then the minimum size of investment is US$5 million.
6. The invested amount cannot be repatriated before 3 years.
Most of the FDI into India is coming in the form of real estate funds based in foreign countries. And most of these funds are tying up with local developers to form joint ventures with which to develop real estate. Tying up with local partners is the most practical and least risky method for FDI to enter into the Indian real estate market – apart from knowledge about local market dynamics etc, the Indian developer will be in a much better position to acquire the land for a project. Purchasing undeveloped land in India is notoriously difficult due to a complicated land ownership system which is compounded by the fact that there are usually multiple owners of even very small plots of land.
Usually, a Special Purpose Vehicle (SPV) is formed by the developer and the fund / foreign investor to develop a project. The developer usually transfers his land into the SPV at market rate and that is his contribution while the fund will provide equity to match the land (or whatever the shareholder agreement between the fund and developer states). Thereafter, all cost and revenues for the project flow from and into the SPV and are shared as per the shareholder agreement.