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FIIs and real estate investments

By: Property, Mon Jun 26th, 2006 09:40:55 PM

The rules governing FDI in the construction development sector. Some time ago the government had permitted 100 percent FDI in construction and development projects. Construction development projects include housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure.

Previously, only non-resident Indians (NRIs) and persons of Indian origin (PIOs) were permitted to invest in the housing and real estate sectors. Foreign investors, other than NRIs, were allowed 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 Indian partner.

Conditions for foreign entities to come into the sector were very restrictive. They were not allowed to make any equity investments in the sector and the area of their involvement was limited to providing engineering, architectural and designing services.

The minimum area they were required to develop was 100 acres (40 hectares), a minimum of 2,000 houses or for at least 10,000 people. Foreign companies were allowed to invest upfront USD10 million for wholly-owned subsidiaries and USD5 million for joint ventures, with a lock-in period of three years.

Last year, the government had permitted 100 percent foreign direct investment (FDI) on the automatic route in the construction development sector, covering a range of areas from hotel resorts to integrated townships.

Instead of the earlier restricted norms permitting foreign investments only in integrated townships, it was decided to permit 100 percent FDI in all forms of housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure.

In case of commercial construction development projects like building of shopping malls or hotels, a minimum of 50,000 square meters has to be built under each project.

Foreign investment is also allowed in office accommodation. The minimum capital requirement for foreign firms setting up wholly-owned subsidiaries in the construction sector is USD10 million and USD5 million for joint ventures.

The funds have to be brought in within six months of commencement of business and foreign firms are not allowed to repatriate their original earnings before three years unless an early exit is cleared by the FIPB.

These projects need 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 , byelaws, rules and other regulations of the state governments , municipal bodies or local bodies concerned.

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Source: www.economictimes.com

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