Real Estate Sector in India-An Update
INDIA BOOM IN REAL ESTATE SECTOR: AN INTRODUCTION
Over the past decade, India has emerged as a leader in the global economy. It is a magnet for foreign direct investment (FDI), and has displaced Mexico as the third most preferred country for foreign investment. FDI in India is expected to increase to US$15 billion this year, triple the 2004 figure. Many foreign companies are starting or expanding operations in India. One-fifth of all Fortune 500 companies including Eli Lilly, General Electric, and Hewlett Packard have set up research and development facilities in India. The surge in foreign investment, more joint ventures between Indian and foreign companies, and the growth of India’s domestic industries have created more employment opportunities for India’s young, highly educated, professional workforce and fueled the growth of the country’s middle class.
Advantage India: Real estate is one of the fastest growing sectors in India. Market analysis pegs returns from realty in India at an average of 14% annually with a tremendous upsurge in commercial real estate on account of the Indian BPO boom. Lease rentals have been picking up steadily and there is a gaping demand for quality infrastructure. A significant demand is also likely to be generated as the outsourcing boom moves into the manufacturing sector. Further, the housing sector has been growing at an average of 34% annually, while the hospitality industry witnessed a growth of 10-15% last year.
Apart from the huge demand, India also scores on the construction front. A Mckinsey report reveals that the average profit from construction in India is 18%, which is double the profitability for a construction project undertaken in the US. The importance of the Real Estate sector, as an engine of the nation’s growth, can be gauged from the fact that it is the second largest employer next only to agriculture and its size is close to US $ 12 billion and grows at about 30% per annum. Five per cent of the country’s GDP is contributed by the housing sector. In the next three or four or five years this contribution to the GDP is expected to rise to 6%.
The Real Estate industry has significant linkages with several other sectors of the economy and over 250 associated industries. One Rupee invested in this sector results in 78 paise being added to the GDP of the State. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. If the economy grows at the rate of 10% the housing sector has the capacity to grow at 14% and generate 3.2 million new jobs over a decade. The relaxed FDI rules implemented by India last year has invited more foreign investors and real estate sector in India is seemingly the most lucrative ground at present. Private equity players are considering big investments, banks are giving loans to builders, and financial institutions are floating real estate funds. Indian property market is immensely promising and most sought after for a wide variety of reasons. Here’s a snapshot!
INFRASTRUCTURE SECTORS WITH PERMITTED FOREIGN DIRECT INVESTMENT UPTO 100% -AUTOMATIC APPROVAL
approval either by the Government of India or the Reserve Bank of India (RBI). Investors are only required to notify the concerned Regional office of RBI within 30 days of receipt of inward remittances and file required documents with that office within 30 days of issue of shares to foreign investors.
List of Infrastructure Sectors with FDI Upto 100% under Automatic Route are as follows:
• Electricity Generation (except Atomic energy)
• Electricity Transmission
• Electricity Distribution
• Mass Rapid Transport System, including associated commercial development of real estate
• Roads & Highways
• Toll Roads
• Vehicular Bridges
• Ports & Harbors
• Hotel & Tourism
• Townships, Housing, Built-up Infrastructure and Construction Development Project
• Setting up/ development of industrial park/ model town/SEZ- 100%FDI under Automatic Route
Automatic Route is not available to those foreign investors who already have a financial or technical collaboration in the same or allied field.
FOREIGN DIRECT INVESTMENT IN INDIA IN REAL ESTATE SECTOR -RECENT REGULATORY CHANGES
Press Note No. 2 (2005 Series) Indian FDI Policy 2006
With a view to catalysing investment in townships, housing, built-up infrastructure and construction development projects as an instrument to generate economic activity, create new employment opportunities and add to the available housing stock and built-up infrastructure, the Government of India has decided to allow FDI up to 100% under the automatic route in townships, housing, built-up infrastructure and construction development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure), subject to the following guidelines:
100% FDI is allowed under automatic route in townships, housing, built-up infrastructure and construction development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) subject to certain guidelines as follows:
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