All about Foreign Direct Policy

The Foreign Direct Investment (FDI) policy is governed by the government of India, under the provision of the Foreign Exchange Management Act (FEMA), 1999. FDI can be done by a non-resident in shares and convertible debentures of an Indian company through two routes:

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Automatic route: In this, the foreign investor or the Indian company in which a person wants to invest does not require approval from the Government of India (GoI) or the Reserve Bank of India (RBI).
Government route: In this, permission is required from the GoI, Ministry of Finance and Foreign Investment Promotion Board (FIPB) before

FDI prohibition

Foreign investment, in any form, is not allowed in a company or a partnership firm in these sectors:

Business of chit fund
Nidhi Company
Agricultural or plantation activities
Trading in transferable development rights (TDR)
Retail trading
Atomic energy
Lottery
Gambling
Real estate business or construction of farmhouses

However, the real estate business does not include the development of townships and the construction of residential/commercial premises, roads or bridges.

Real estate sectoral cap on FDI

Housing sector

NRIs are allowed a 100% investment cap and can invest in:

Development of serviced plots and construction of built-up residential premises
Investment in real estate covering construction of residential and commercial premises, including business centres and offices
Township development
City and regional-level urban infrastructure facilities, including roads and bridges
Investment in building material manufacture
Investment in participatory ventures in any of the above
Investment in housing finance institution, which is open to FDI as an NBFC

Source: Guide Book for Overseas Indians on Foreign Direct Investments in India

Townships, housing, built-up infrastructure and construction development projects

The sector would include, but not be restricted to, the construction of housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city and regional-level infrastructure. NRIs are allowed a 100% investment cap in this. The investment shall be subject to the following guidelines:

The minimum area to be developed under-serviced housing plots is 10 hectares. In the case of a construction development project, it will be 50,000 sqm. In the case of a combination project, any one of the above two conditions.
Minimum capitalisation of $10 million for wholly-owned subsidiaries and $5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of the commencement of the business.
The original investment cannot be repatriated before a period of three years from completion of minimum capitalisation. However, the investor may be permitted to exit earlier with prior approval of the Government through the FIPB.
At least 50% of the project must be developed within five years from the date of obtaining all statutory clearances. The investor shall not be permitted to sell undeveloped plots.
The project shall conform to the norms and standardsof the building control regulations, bylaws, rules and other regulations of the state government/municipal/local body.
The investor shall be responsible for obtaining all necessary approvals, including for building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges, and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the state government/municipal/local body.
The state government/municipal/local body, which approves the building/development plan, shall monitor compliance with the above conditions.

FAQs

What is FDI in real estate?

Through FDI in real estate, foreign companies can establish an Indian presence through JVs or wholly-owned companies in India.

Can foreigners purchase property in India?

Yes, foreigners with long-term visas or resident permits can purchase property in India. They have to adhere to conditions, such as the intended use of the property.

What are the two routes of investment in India through FDI?

You can invest through automatic and government routes.

What are the sectors in which FDI in India is prohibited?

FDI, in any form, is not allowed in sectors of business of chit fund, Nidhi Company, agricultural or plantation activities, trading in transferable development rights (TDR), retail trading, atomic energy, lottery, gambling and real estate business or construction of farm houses.

Cite an investment guideline concerning township construction.

As per the FDI policy, at least 50% of the project must be developed within five years from the date of obtaining all statutory clearances. The investor shall not be permitted to sell undeveloped plots.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com

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Anuradha Ramamirtham

With 16+ years of experience in various sectors, of which more than ten years in real estate, Anuradha Ramamirtham excels in tracking property trends and simplifying housing-related topics such as Rera, housing lottery, etc. Her diverse background includes roles at Times Property, Tech Target India, Indiantelevision.com and ITNation. Anuradha holds a PG Diploma degree in Journalism from KC College and has done BSc (IT) from SIES. In her leisure time, she enjoys singing and travelling.
Email: anuradha.ramamirtham@housing.com