Real estate is as safe as houses for FDI

Foreign Direct Investment (FDI) is a major driver of economic growth and a significant contributor to the expenditure that fuels the country’s development goals. The real estate industry is a cornerstone of the economy, employing the second-largest number of people after agriculture and having a multiplier effect on 270 other sectors. Forecasts for growth predict that it will reach USD 1 trillion by 2030. 

Foreign investment has increased significantly as the industry transforms. Certain sectors are currently barred from receiving foreign direct investment via automatic or government-approved channels. The real estate industry is one such sector. A real estate business is any entity that engages or intends to engage in real estate business, farmhouse construction, or trading in transferable development rights. FDI is not permitted in such organizations. 

However, the real estate business excludes the development of townships, building homes and commercial buildings, roads, bridges, and real estate investment trusts (REITs) governed by the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations 2014. FDI is thus not permitted in businesses that deal in land or immovable property solely for profit.

However, township development, construction of residential and commercial buildings, roads and bridges, educational institutions, hospitals, resorts, hotels, recreational facilities, city and regional-level infrastructure, townships, real estate broking services, and the earning of rent or income on leases of property that do not amount to transfer are not considered real estate business, and FDI is not prohibited. 

Where permitted, FDI is permitted up to 100% via the automatic route. Non-residents can invest in equity shares through compulsory and mandatory convertible debentures through FDI. Foreign direct investment (FDI) can be made in an Indian company’s fully compulsory and mandatory convertible preference shares via the automatic route, which requires no government approval. However, depending on the investment vehicle and industry in which the Indian company operates, both investors and the company may be required to report under the Foreign Exchange Management Act of 1999. They must also follow all relevant laws, regulations, and rules. 

FDI in construction development projects by automatic means is subject to certain conditions. A foreign investor may withdraw and repatriate their investment before the completion of a project or after the development of critical infrastructure such as roads, water supply, street lighting, drainage, and sewerage (trunk infrastructure), provided that a three-year lock-in period has expired. This lock-in does not apply to specific projects such as hotels, tourist resorts, hospitals, special economic zones, educational institutions, old-age homes, and non-resident Indian investments. All projects must adhere to applicable regulations, including land use requirements and community amenities, as laid out by the appropriate agency. The Indian company must obtain all necessary approvals from the relevant authorities and can only sell developed plots with pre-existing trunk infrastructure. 

According to the Department for Promotion of Industry and Internal Trade, real estate-related activities attracted USD 4.026 billion in foreign direct investment from April to December 2023. USD 185 million came from building townships, housing, infrastructure, and other construction projects. Real estate activities attracted USD 60.07 billion in FDI from April 2000 to December 2023, accounting for 9% of total FDI. FDI in the real estate sector has increased due to policy easing, significant growth in the property technology sector, strong demand for high-quality office space, and the emergence of alternative investment vehicles such as REITs.

The real estate market has grown significantly over time. The ever-increasing urban population has driven up demand for residential and commercial development. International investors have contributed capital and implemented global best practices. These have raised the quality of planning, construction, and design. There is a strong and resilient real estate market that attracts both domestic and international investors. It continues to draw domestic and international investors due to its strength and resilience. 

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