According to a report published in the Economic Times, a leading financial daily in India , FDI inflows in the Housing and Real Estate sector between 2005 and August 2007 was up to INR 5812 crores (INR 58.12 bn). Fox Mandal is proud to have been instrumental in well over 30% of deals involved with these inflows on behalf of the Foreign Investor.

Real Estate Market in India

The real estate sector in India is witnessing a wide spectrum of changes, that slowly but surely is expected to make India, a preferred destination for real estate activity. Investing in real estate has always attracted investors all over, private or institutional. The policy of allowing foreign direct investment (“FDI”) in real estate sector (the investment would be in integrated townships which would include housing, commercial premises, hotels and resorts, while the urban infrastructure would comprise roads and bridges, mass rapid transit, systems and manufacture of building materials) has helped improve the image of investing in the real estate sector in India.

Foreign Direct Investment in Real Estate

Real estate sector had until recently been an area, which the Government of India had been reluctant to open up for foreign investment. Indian laws prohibited FDI in real estate business whereby foreigners were not allowed to make investment in any company, firm or proprietary concern or in any entity which was engaged in the business of real estate and construction of farm houses. Such prohibition also extended to the use of borrowed funds from the non-residents as the residents in India could not use the said funds in real estate business or construction of houses.

Under the Foreign Exchange Management Act, 1999 (“Act”) read with the relevant regulations thereof, real estate business means buying and selling of real estate or trading in transferable development rights excluding the development of townships, construction or residential/commercial premises, roads or bridges from the meaning of real estate sector. Transferable development rights means certificates issued in respect of category of land acquired for public purpose either by Central or State Government in consideration of surrender of land by the owner without monetary compensation, which are transferable in part or whole.

The decision to liberalize the FDI norms in the construction sector is perhaps the most significant economic policy decisions taken by the Government of India. In the past, only Non-Resident Indians (“NRI”) and Persons of Indian Origin (“PIO”) were permitted to invest in the housing and the real estate sectors. Foreign investors other than NRI were allowed to invest 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 partner.

Further, 100% FDI under the automatic route is allowed by recent government guidelines, being Press Note 2 of 2005, in townships, built up infrastructure, housing and construction-development projects which would include but not to be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure subject to the conditions stated hereunder: