In India's fast-growing economy, Real Estate has found its place as one of the most appealing investment areas for domestic as well as foreign investors. Commercial space requirements are growing at an all time high.

The FDI regime governed by the Foreign Direct Investment Scheme under the FEMA (Transfer or Issue of Security to a Person Resident Outside India) Regulations 2000 (the FEMA Regulations) as modified by Press Note 2 of 2005 has evoked a positive response. The Press Note permits 100% FDI into townships, housing, built-up infrastructure and construction development projects (including commercial premises). The latest success story with regard to foreign investment in India is the approval of the first FDI project for a 100-acre residential township in Gurgaon.

The manner in which the evolving Indian Real Estate Laws on FDI in India has set an atmosphere for foreign investment is laudable. The Real Estate and construction sector in India witnessed an influx of $1.45 billion, which accounted for 12% of the total FDI inflows received in 2006, a 3.4% rise from the 2005 figure. India must offer reasonable returns and flexibility to balance perceived risks to international investors.

FDI in Indian Real Estate and construction, which was limited due to acreage restrictions for integrated townships, have been relaxed. Venture funds have also been allowed to invest in Real Estate. The developments related to repealing of antiquated land acquisition and rent control laws and rationalization of property taxes have enlivened hopes of annual investment to the tune of $4 billion of into the construction industry. Moreover, India laws allow property investment in India so that a person can acquire Real Estate in India for a foreign physical or legal person. However, FDI is allowed only in projects where development is required and not those that have already been developed and have a rental income. Some other requirements are:

• The minimum area to be developed for serviced housing plots is 10 hectares and for construction development projects is 50,000 square meters.


• The minimum capitalization requirements are $10 million for a wholly-owned foreign company and $5 million for joint ventures with an Indian partner. These funds have to be brought in within six months of commencing business.


• Capital must also be invested for three years and each development must be 50% complete within five years of the start of the project, precisely from the date of obtaining all statutory clearances.


• The sale of undeveloped plots is not permitted.

The original investment cannot be repatriated until three years have passed from the time of infusing minimum capitalization, though an earlier exit might be permitted with prior approval of the Foreign Investment Promotion Board.

Joint ventures with local players are preferred over wholly owned subsidiaries by most investors as the local partner’s knowledge of Indian environment and practices affords the investor in-depth market knowledge and enable the venture to navigate through issues of clear titles and non-transparent financial dealings.

The Indian government has responded to a massive demand in India for large-scale retail and entertainment malls with policy initiatives. In this context a supply chain network can introduce the investor to strategic contacts in business and government.

There is a possibility that pressure from the real estate industry lobbies, potential investors, various international players and bilateral trading partners such as Singapore and Malaysia may move the government to ease many restrictions, such as minimum acreage and lock-in period.

About Author:Vikram Singh is a contributing author to the website indianrealtylaws.com - The Indian property law portal. It is committed to provide visitors with complete information on Property Laws in India, Indian Real Estate Laws, Legal Process Outsourcing, Property Disputes in India, Indian legal services etc. Your can send your feedback at vikram.singhg@gmail.com.