FDI Inflows to Script Real Estate Revival
The Foreign Direct Investment (FDI) started in India way back in the 2000 and in 2008 declined substantially. The recent government’s decision to offer 100% FDI under the automatic route to construction development has once again opened up the Indian market to global investors.
As per the statistics by the Departmental of Industrial Policy & Promotion (DIPP), in just nine months of FY 2017-18, FDI equity inflows into construction development rose by around 250% as compared to FY 2016-17. The figures speak for themselves and indicate the willingness of international players to invest in Indian realty market.
Till now global investors were reluctant due to the unregulated nature of the market and lack of transparency. They were not sure of the returns and some even burnt their fingers. Recent regulatory changes, RERA and GST have changed the business environment considerably. Such policy initiatives sustained over coming years will ensure the revival of Indian real estate.
Foreign Investments into Construction Development, Townships & Housing (RsCrore)
As a positive move, this year, the government relaxed the FDI policies and now FDI investors can invest in projects less than 50,000 square meter of the built-up area, which makes it easy for such investors to target city-centric projects.The residential sector has certainly got a fillip with 100 percent foreign direct investment under automatic route in the construction development segment, which includes townships, real- and housing.In fact, the residential segment has attracted sovereign funds sponsored by government such as CPPIB and GIC.
So, how does FDI relaxation impacts the real estate sector?
After a prolonged period of slowdown, developers and investors are betting high on the sector. The entire real estate sector got investments worth Rs 30,000 crore, including from domestic and overseas investors.
We have already seen how approval of 100 per cent FDI under the automatic route for single-brand retail trading has prompted foreign retailer giants like Ikea and Walmart to set shop in India. In addition, across cities organised and quality retail spaces are coming up to cater to the international retailers.
Most of the fresh investments are towards commercial real-estate and infrastructure. Office real estate being a rent-yielding asset is popular among foreign investors. Today, investment activity in the office space and malls has increased manifold driven by the REITs as it gives an option for large investor to exit their position once their returns are made.Blackstone, Brookfield, LOGOS are some of the investors in this segment among others.
According to industry experts, 100 per cent FDI in construction development will bring in clean money and international trade practices into the Indian real estate market.
Affordable housing is another segment that has seen largest traction among theforeign and domestic investors. The infrastructure status, priority approval, tax holidays, interest rate subsidies for homebuyer’s loans are the pull factor for this segment. Hopefully, in next few years, real estate asset classes such as rental housing development, student housing and senior citizen living will also come within the parameters of FDI investments.
Investors and developers are also flocking to industrial real estate with the FDI relaxation announcement. Strong investor appetite is fuelled by e-commerce growth and demand for warehousing. Overseas investors have begun partnering with Indian real estate developers to create high-end industrial parks to cater to the global manufacturing firms entering India.
Indian real estate segments have much to cheer about as the grant of 100% FDI (foreign direct investment) in retail and real estate will create more job opportunities, ease of doing business and funding avenues. On the other hand global investors too are keen to grab a pie of the realty space of one of the fastest growing economy of the world.
Consolidated FDI Policy
Construction Development: Townships, Housing, Built-up Infrastructure
Construction-development projects includedevelopment of townships, construction ofresidential/commercial premises, roads or bridges,hotels, resorts, hospitals, educational institutions,recreational facilities, city and regional levelinfrastructure, townships)
Each phase of the construction development project would be considered as a separate projectfor the purposes of FDI policy. Investment will be subject to the following conditions:
(A) (i) The investor will be permitted to exit on completion of the project or after development oftrunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage.
(ii) Notwithstanding anything contained at (A) (i) above, a foreign investor will be permittedto exit and repatriate foreign investment before the completion of project under automaticroute, provided that a lock-in-period of three years, calculated with reference to eachtranche of foreign investment has been completed. Further, transfer of stake from onenon-resident to another non-resident, without repatriation of investment will neither besubject to any lock-in period nor to any government approval.
(B) The project shall conform to the norms and standards, including land use requirements andprovision of community amenities and common facilities, as laid down in the applicable buildingcontrol regulations, bye-laws, rules, and other regulations of the StateGovernment/Municipal/Local Body concerned.
(C) The Indian investee company will be permitted to sell only developed plots. For the purposesof this policy “developed plots” will mean plots where trunk infrastructure i.e. roads, water supply,street lighting, drainage and sewerage, have been made available.
(D) The Indian investee company shall be responsible for obtaining all necessary approvals,including those of the building/layout plans, developing internal and peripheral areas and otherinfrastructure facilities, payment of development, external development and other charges andcomplying with all other requirements as prescribed under applicable rules/bye-laws/regulationsof the State Government/Municipal/Local Body concerned.
(E) The State Government/Municipal/Local Body concerned, which approves thebuilding/development plans, will monitor compliance of the above conditions by the developer.
– FDI is not permitted in an entity which is engaged or proposes to engage inreal estate business, construction of farm houses and trading in transferable developmentrights (TDRs).
– “Real estate business” means dealing in land and immovable property with a view toearning profit there from and does not include development of townships, construction ofresidential/ commercial premises, roads or bridges, educational institutions, recreationalfacilities, city and regional level infrastructure, townships. Further, earning of rent/ income onlease of the property, not amounting to transfer, will not amount to real estate business.
– Condition of lock-in period at (A) does not apply to Hotels &Tourist Resorts, Hospitals,Special Economic Zones (SEZs), Educational Institutions, Old Age Homes and investment byNRIs.
– Completion of the project will be determined as per the local bye-laws/rules and otherregulations of State Governments.
– Consequent to foreign investment, transfer of ownership and/or control of the investeecompany from residents to non-residents is also permitted. However, there would be a lockin-periodof three years, calculated with reference to each tranche of FDI, and transfer ofimmovable property or part thereof is not permitted during this period.
– Also, 100% FDI under automatic route is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres as well as industrial parks – new and existing.
Source: Department of Industrial Policy and Promotion