Q6. What kinds of incentive can NRIs, PIOs and foreigners look forward to in the Indian real estate industry that favours investment?
Ans.: The relaxation of FDI in the construction development sector announced in March 2006 allows NRIs, PIOs and all foreigners equal opportunity with their Indian counterparts in the Indian real estate sector. The new guidelines state that before selling, the site has to be developed, constructed upon or fulfill the criteria of a minimum of one year of development.
- NRIs, PIOs and foreigners can now invest in land, buy it, construct upon it or develop it, sell constructed buildings/developed plots
- FDI through automatic route can also flow in not just for the housing sector, but also for townships, housing, commercial area, and infrastructure development
- Restrictions on minimum area of land, minimum number of units has been removed
- Minimum constructed area required is 50, designated area is 25 acres
Q7. Is there any deadline to actually complete your construction development work?
Ans.: The norms are quite liberal. It allows you five years to finish at least 50% of your project from the date of getting all the clearances. Under normal circumstances the project can be completed within three years. It helps protect the customer and keeps fly-by-night people at bay.
Q8. How does the automatic route work?
Ans.: The automatic route has simplified much of the cumbersome investment process. Approval from the Reserve Bank is not required anymore and there is also no need to go to the Foreign Investment Promotion Board. The easing of paper work and relaxation of formalities has given a boost to overseas investor confidence for investing in India.
Q9. What aspects should overseas investors look at in the Indian real estate market to facilitate the suitability of their projects?
Ans.: Any NRI before investing in the Indian real estate should also focus on the particular segment that he plans to invest in like residential, retail or office space. Consulting legal firms and real estate firms providing professional NRI services can be very useful.
Q10. What steps should an NRI follow for getting all the clearances in a hassle-free manner? Whom should one consult in the process?
Ans.: A lot depends on the segment you want to invest in. It helps to gauge the future state and to know what utilities are available. An office market investment, for instance, requires you to:
- Get in touch with consultants for advice on the city of choice
- Outline your objectives, the size of your investments
- Have an approximate of the returns you are expecting. The yield that has evolved from distinct parameters ranges between of 8 - 8.5% to 12% for office space and 4% - 6% in residential
- Whether the land is for investment or for development is also a deciding factor, as is the local demand-supply situation. While investing in India, the availability and quality of infrastructure or utilities like power, connectivity, security and long-term future plans need to be scrutinized.
Q11. Is a single window clearance possible?
Ans.: Single window in a real estate project in India may be difficult because of the involvement of several authorities. If it is a multistoried building, you need to get clearance from town planning authorities, clearance on design, elevators, firefighting agencies, etc. Efforts are on to make the process simpler and transparent, though.
Q12. How is the sanctioning authority and monitoring authority different in India?
Ans.: In some states, the Municipal authority is the ultimate monitoring authority. In smaller states and in non-urban areas, the town and country planning corporation acts as the monitoring authority. In urban areas where most of the construction takes place, the municipal authority wields power in giving the final permission and sanctioning drawings and plans. Clearances on electricity, water supply and other utilities also come from here.
Q13.The new FDI norms state that the minimum investment has to be USD 5 million for 51% shareholding. Does this include funding of subsidiaries as well?
If you have a wholly owned subsidiary by a foreign company then the minimum capitalization norm is USD 10 million.
If you have a joint venture, the ratio 74:26 or 51:49 is immaterial. For a joint venture, the minimum capitalization is USD 5 million in foreign exchange.
This minimum amount of foreign exchange is required to arrive within six months from the date of commencement of business. The six months can be used to bring that money into India.