In the real estate sector of India, 100% FDI is permitted through automatic route for construction development projects, including the development of townships, housing, commercial premises, city and regional level infrastructure, roads and bridges, hotels and resorts, educational institutions, hospitals, recreational facilities, etc. Here, it must be noted that FDI is not permitted in constructing or developing those entities which will be engaged in the real estate business (as defined in the RBI and FEMA regulations connected with land and immovable properties), construction of farm houses, and trading in the transferable development rights (TDRs). Here, it may also be just mentioned that the construction industry of India worth around US$ 126 billion at present, of which the real estate sector is a part, is the second largest economic sector of the country after the agricultural sector, and contributes around 10% of the national GDP every year. Again, this construction sector of India draws the second highest FDI inflows after the service sector, and employs about 35 million people. Exclusive information about the real estate sector of India and its growth trends is provided in the lower section.Regarding fdi in real estate sector in india, the following policies and conditions must be noted:
- For development of serviced housing plots and the construction-development projects, the minimum land and built-up area must be 10 Hectares and 50,000 square meters, respectively.
- The magnitude of the minimum capitalization required for the wholly-owned subsidiaries and the joint ventures (with Indian partners) is US$ 10 million and US$ 5 million, respectively. The requisite funds must be brought in within six months of the business commencement.
- There are certain exemptions for construction and development of smart cities, old age homes, housing, hospitals, structures of the hospitality and tourism sector, Special Economic Zones (SEZs), educational institutions, etc., in respect of the minimum capitalization, minimum area requirement, lock in period, etc.
Benefits of Foreign Direct Investment in India Real Estate
FDI in the Indian real estate sector in various construction development projects mentioned above is most likely to be hugely lucrative in future years. The real estate sector of India has been a fast growing and progressing sector, and is bound to prosper rapidly in the coming decades, owing to the following factors. Before slowing down due to the 2008 global financial crisis, the annual growth rate of the Indian real estate sector had attained a level as high as 30%. After this slowdown, this sector is progressing steadily with growth rates varying between 6.5% and 8%. The benefits of foreign direct investment in india real estate are described in the following paragraphs:
The increment in the urban population in India during 2001-2011 was around 32%, and has reached the level of 377 million in 2011. As per estimates there was an urban housing shortage of about 20 million dwelling units in 2012; and this figure in the rural areas was about 47.5 million units. Hence, there is vast scope for growth in the housing segment both in the urban and rural areas. It is estimated that nearly 600 million people will be living in cities and urban areas by the year 2030 (caused by both population growth in cities itself and migration from rural areas). This implies that development of townships and modern urban infrastructure will also certainly prosper in coming years.