FDI in real estate: rules need further clarification

In India, foreign direct investment (FDI) of up to 100% is permitted under the automatic route in township, housing and construction projects, subject to certain conditions in the Department of Industrial Policy and Promotion’s (DIPP’s) press note 2 of 2005.

(i) Minimum development: the minimum land area to be developed for serviced housing plots is 10 hectares (50,000 square metres for construction development projects); (ii) Minimum capitalization: for a wholly owned subsidiary, the minimum capitalization is US$10 million (US$5 million for a joint venture), which must be brought in within six months of the commencement of business; (iii) Lock-in requirement: the original investment may not be repatriated within three years of the minimum capitalization, except by prior approval of the Foreign Investment Promotion Board (FIPB).

Additional rules: at least 50% of the project must be developed within five years of obtaining all statutory clearances (the foreign investor being responsible for obtaining such clearances); the investor may not sell undeveloped plots; and the project must comply with land use requirements, the provisions of applicable building control regulations and other standard local, municipal and state government rules.

Juhi Singh is a partner at S&R Associates, a New Delhi-based law firm.