The Indian government has set up guidelines for investors willing in foreign direct investment in Indian real estate. In case of development of serviced housing plots, 25 acres is the minimum area allowed, while for the construction-development projects; the minimum built-up area should be 50,000 square meters.
For wholly owned subsidiaries $10 million is the minimum capitalization and for joint venture with Indian partners it is $5 million, to be brought in within 6 months of start of business. Original investment cannot be repatriated before a time period of 3 years from completion of capitalization. But, the investor may exit earlier with prior approval from Foreign Investment Promotion Board. At least 50% of the project is to be developed within 5 years from the date of obtaining all statutory clearances and the investor cannot sell undeveloped plots.
With this change in the government policy on FDI, the realty sector is currently witnessing huge demand. India in the next 5 year period is estimated to improve investments in the urban housing sector, which will open up opportunities for foreign investments in the realty sector. The Central government allowed up to 100% FDI for setting up townships in 2002. However, the flow of FDI investments has been thwarted by the 100 acre criterion; since acquiring such a large chunk of land was impossible in metropolitan cities and even satellite cities and state capitals.
Foreign Direct Investments in the real estate sector in India would also contribute towards making the sector more organized. One of the most anticipated promises for the Indian real estate sector, has been the entry of Real Estate Mutual Funds (REMFs) or Real Estate Investment Trusts (REITs). Experts believe that they will definitely ensure more availability of funds to the developers and faster growth of real estate sector and besides increasing professionalism in the sector, it would also bring in advanced technology and create competitive market environment for both domestic and foreign investors.
