FDI IN REAL

ESTATE IN
INDIA
Introduction of Group Members
 Introduction to FDI - Indrani Das (238)
 Introduction to Real Estate - Pawan (227)
 FDI in India- Dhiraj (232)
 Pre-FDI in real estate - Esther Zorinpuii (193)
 Impact on Economic - Yamini Rana (226)
Growth/Conclusion
Foreign Direct Investment(FDI)
 Known as joint Venture collaboration.
 An integral part of national development strategies .
 India is evolving as one of the ‘most favored
destination’ for FDI in Asia and the Pacific (APAC).
 FDI in India has contributed effectively to the
overall growth of the economy in the recent times.
Types of FDI
 Greenfield Investment : Direct Investment in new
facilities.
 Brown field Investment: Direct Investment in
Expansion of Existing facilities. E.g.: IGI Airport
FDI Policy in India – An Overview

 FDI permitted in almost all activities

 • Up-to 100% FDI allowed in manufacturing
 • Most FDI allowed on the ‘automatic route’- only to inform the
 Central Bank within 30 days of remittances
 • Liberal policy for foreign technology collaboration
 • Policy supported by a legal framework
 • National treatment to investment
 • Investments, profits and dividends fully repatriable
 • Ceilings and routes for investment being constantly reviewed and
 liberalized.
 • Indian FDI policy regime assessed independently to be liberal
 and progressive
Investing in India – Entry Routes

Investing in India

Automatic Prior
Route Permission

General rule
By exception
No prior permission
Prior Government
required
Approval needed.
Inform Reserve Bank
Decision generally
within 30 days of
Within 4-6 weeks
inflow/issue of share
 Liberalization of FDI Policy
New
sectors
opened
FDI up to
100% allowed FDI limits
in most sectors Increased
FDI up to
100% Procedures
Only
allowed
Automatic in some sectors
a small Further
negative list simplified
Route FDI up to
introduced 74/51/50%
allowed
FDI up to 51%
In 111 sectors
Allowed
In 35 priority
sectors
FDI
Allowed
selectively
 Preto1991
up 40%
 Pre 1991 1991 1997 2000 2000-beyond
FDI Scheme- FEMA Regulations
 FDI includes investment by:
 • a non-resident;
 • a non-resident incorporated entity (foreign company),
 • a non-resident Indian,
 • Person of Indian Origin,
 FDI includes investment through:
 • Issue of Preference shares
 • American Deposit Receipts (ADR)/Global Deposit Receipts
 (GDR)
 • Foreign Currency Convertible Bonds
Sectors where FDI is prohibited
 Retail Trade (except Single Brand Retailing)
 Gambling
 Betting & lottery;
 Atomic energy
Definition of Real Estate
 Real Estate is artificially delineated space
referenced to a fixed point on the surface of the
earth with a fourth dimension of time. It is built to
house an economic activity that is subject to
cultural preferences and restricted by the public
infrastructure.
Concepts
 Space-Time Product
 Real estate is a space-time product, that is, it generates
income over time in exchange for the use of space.
Examples: apartments, football tickets, wedding
receptions
Characteristics
 The Real Estate Market Characteristics:

 1. Highly Stratified, Local Markets

 2. Heterogeneous Product
 3. Private, not Public, Transactions
 4. Unsophisticated Investors
 5. Unorganized Market
 Investor Motivations
• 1. Pride in Ownership
• 2. Personal Control
• 3. Self-use and Occupancy
• 4. Estate Building
• 5. Security of Capital
• 6. High Operating Yield
• 7. Leverage
• 8. Tax Shelter
• 9. Capital Appreciation
• 10. Portfolio Diversification
Foreign Direct Investment (FDI) in Real
Estate
 The decision to liberalise the FDI norms in the
construction sector is perhaps the most significant
economic policy decision taken by the Government
of India.
 Until now, only Non-Resident Indians (NRIs) and
Persons of Indian Origin (PIOs) were permitted to
invest in the housing and the real estate sectors.
Guidelines for FDI application in Indian real
estate

 The Government of India has set up certain

guidelines for investors willing to apply in FDI in
real estate, which have conditions like:-
Minimum area
Investment

Time frame and Rules

Minimum area

 development of serviced housing plots, 10 hectares

(25 acres)
 In case of construction-development projects, built-
up area of 50,000 sq m.
 In case of a combination project, any of the above
two conditions
Investment
 Minimum capitalization:-for wholly owned
subsidiaries - US$ 10 million
 for JV with Indian partners - US$ 5 million–, to be
brought in within 6 months of commence) Investment
of business
 Original investment cannot be repatriated before a
period of three years from completion of
capitalization.
 The investor may exit earlier with prior approval from
Foreign Investment Promotion Board (FIPB).
Time frame & rules
 At least 50 per cent of the project to be developed
within five years from the date of obtaining all
statutory clearances.
 Investor cannot sell undeveloped plots - where
roads, water supply, street lighting, drainage,
sewerage and other conveniences are not available.
Pre- FDI LIBERALISATION
 Construction Sector Growth (94-98) - Comparisons
15.5% 15.1% 15.0%

10.6%
9.2%

4.2%

China Brazil Taiwan Korea Thailand India

Comparison of Construction Sector Growth (94-98)

 Construction's Contribution to the GDP( 1999)
18.0%
17.0%

12.5% 12.0%

8.0% 7.8%
7.0%
6.0%
5.2%
Portugal

Ireland

Canada

Poland

UK

USA

Japan

Republic

India
Slovak
Comparison of Construction Sector Growth (94-98)
(Source: McKinsey Report, Research@Indiaproperties)
BENEFITS OF FDI IN REAL ESTATE

 It will provide the much-needed investment for the funds-

starved sector;
 It will bring in professional players equipped with expertise in
real estate development;
 The introduction of new technology and quality real estate
assets will have a demonstration effect on the local developers;
 It will lower real estate costs in the long run;
 It will generate employment and revenue;
 It will improve the quality of related infrastructure.
PROBLEMS FACED BY FDI’s IN REAL ESTATE SECTOR

 Policy Framework
 FDI Policy
 Domestic Policy
 Image and Attitude
FDI IN REAL ESTATES AND ECONOMIC
GROWTH

• In 2005 100% FDI is allowed in real estates.

• During first half of 2005-06 fiscal had attracted
more than three times foreign investment.
• FDI also contribute in making sector more
organized.
• India in the period (2005-2010) requires investments
worth US $ 25 billion with the urban housing sector.
Cont….
 in 2005, minimum land area for development by
foreign investors was lowered from the earlier floor
of 100 acres to 25 acres.
 The size of the real estate industry in India is
estimated to be around US$ 12 billion.
 figure is growing at a pace of 30% for the last few
years.
Cont…
YEAR FDI INFLOW SHARE OF REAL
ESTATE
2003-04 US$ 2.7 billion 4.5%

2004-05 US$ 3.7 billion 10.6%

2005-06 US$ 5.46 billion 16%

2006-07 US$ 19.5 billion

2007-08 US$ 24 billion

2009-10 US$ 26.5 billion

CONCLUSION
The evolution of FDI has been divided into two waves:
 ‘First Wave’ covering the period 1975-90
 ‘Second Wave’ covering the period 1991 onwards.

The new current and benefits brought by the FDI

development in Indian real Estate Sector is not improving the
major poor population in India. If there are some schemes
allowing this section of population to get benefit from the new
real estate developments brought by FDI it would have been
better.
THANK YOU!!!