FDI IN REAL ESTATE IN INDIA

Introduction of Group MembersIntroduction to FDI Introduction to Real Estate FDI in India Pre-FDI in real estate Impact on Economic Growth/Conclusion Indrani Das (238) Pawan (227) Dhiraj (232) Esther Zorinpuii (193) Yamini Rana (226)

Foreign Direct Investment(FDI)Known as joint Venture collaboration. An integral part of national development strategies . India is evolving as one of the most favored destination for FDI in Asia and the Pacific (APAC). FDI in India has contributed effectively to the overall growth of the economy in the recent times.

Types of FDIGreenfield Investment : Direct Investment in new facilities. Brown field Investment: Direct Investment in Expansion of Existing facilities. E.g.: IGI Airport

FDI Policy in India An OverviewFDI permitted in almost all activities Up-to 100% FDI allowed in manufacturing Most FDI allowed on the automatic route- only to inform the Central Bank within 30 days of remittances Liberal policy for foreign technology collaboration Policy supported by a legal framework National treatment to investment Investments, profits and dividends fully repatriable Ceilings and routes for investment being constantly reviewed and liberalized. Indian FDI policy regime assessed independently to be liberal and progressive

Investing in India Entry RoutesInvesting in India

Automatic Route

Prior Permission

General rule No prior permission required Inform Reserve Bank within 30 days of inflow/issue of share

By exception Prior Government Approval needed. Decision generally Within 4-6 weeks

Liberalization of FDI PolicyNew sectors opened

FDI up toFDI up to 100% allowed in some sectors 100% allowed in most sectors Only a small negative list

FDI limits Increased Procedures Further simplified

Automatic Route introducedFDI up to 51% Allowed In 35 priority sectors

FDI up to74/51/50% allowed In 111 sectors

Pre 1991 2000-beyond

FDI Allowed selectively Pre 1991 up to 40%

1991

1997

2000

FDI Scheme- FEMA Regulations SchemeFDI includes investment by: a non-resident; a non-resident incorporated entity (foreign company), a non-resident Indian, Person of Indian Origin, FDI includes investment through: Issue of Preference shares American Deposit Receipts (ADR)/Global Deposit Receipts (GDR) Foreign Currency Convertible Bonds

Sectors where FDI is prohibitedRetail Trade (except Single Brand Retailing) Gambling Betting & lottery; Atomic energy

Definition of Real EstateReal Estate is artificially delineated space referenced to a fixed point on the surface of the earth with a fourth dimension of time. It is built to house an economic activity that is subject to cultural preferences and restricted by the public infrastructure.

ConceptsSpace-Time Product Real

estate is a space-time product, that is, it generates income over time in exchange for the use of space. Examples: apartments, football tickets, wedding receptions

CharacteristicsThe Real Estate Market Characteristics: 1. 2. 3. 4. 5.

Highly Stratified, Local Markets Heterogeneous Product Private, not Public, Transactions Unsophisticated Investors Unorganized Market

Investor Motivations

1. Pride in Ownership 2. Personal Control 3. Self-use and Occupancy 4. Estate Building 5. Security of Capital 6. High Operating Yield 7. Leverage 8. Tax Shelter 9. Capital Appreciation 10. Portfolio Diversification

Foreign Direct Investment (FDI) in Real EstateThe decision to liberalise the FDI norms in the construction sector is perhaps the most significant economic policy decision taken by the Government of India. Until now, only Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were permitted to invest in the housing and the real estate sectors.

Guidelines for FDI application in Indian real estateThe Government of India has set up certain guidelines for investors willing to apply in FDI in real estate, which have conditions like:-

Minimum area Investment Time frame and Rules

Minimum areadevelopment of serviced housing plots, 10 hectares (25 acres) In case of construction-development projects, built-up area of 50,000 sq m. In case of a combination project, any of the above two conditions

InvestmentMinimum capitalization:-for wholly owned subsidiaries - US$ 10 million for JV with Indian partners - US$ 5 million, to be brought in within 6 months of commence) Investment of business Original investment cannot be repatriated before a period of three years from completion of capitalization. The investor may exit earlier with prior approval from Foreign Investment Promotion Board (FIPB).

Time frame & rulesAt least 50 per cent of the project to be developed within five years from the date of obtaining all statutory clearances. Investor cannot sell undeveloped plots - where roads, water supply, street lighting, drainage, sewerage and other conveniences are not available.

Pre- FDI LIBERALISATION

Construction Sector Growth (94-98) - Comparisons15.5% 15.1% 15.0%

10.6% 9.2%

4.2%

China

Brazil

Taiwan

Korea

Thailand

India

Comparison of Construction Sector Growth (94-98)

Construction's Contribution to the GDP( 1999)18.0% 17.0% 12.5%

12.0% 8.0% 7.8%

7.0%

6.0%

5.2%

Portugal

Ireland

Comparison of Construction Sector Growth (94-98) (Source: McKinsey Report, Research@Indiaproperties)

Canada

Poland

UK

USA

Japan

Slovak Republic

India

BENEFITS OF FDI IN REAL ESTATEIt will provide the much-needed investment for the fundsstarved sector; It will bring in professional players equipped with expertise in real estate development; The introduction of new technology and quality real estate assets will have a demonstration effect on the local developers; It will lower real estate costs in the long run; It will generate employment and revenue; It will improve the quality of related infrastructure.

PROBLEMS FACED BY FDIs IN REAL ESTATE SECTORPolicy Framework FDI Policy Domestic Policy Image and Attitude

FDI IN REAL ESTATES AND ECONOMIC GROWTH

In 2005 100% FDI is allowed in real estates. During first half of 2005-06 fiscal had attracted more than three times foreign investment. FDI also contribute in making sector more organized. India in the period (2005-2010) requires investments worth US $ 25 billion with the urban housing sector.

Cont.in 2005, minimum land area for development by foreign investors was lowered from the earlier floor of 100 acres to 25 acres. The size of the real estate industry in India is estimated to be around US$ 12 billion. figure is growing at a pace of 30% for the last few years.

ContYEAR2003-04 2004-05 2005-06 2006-07 2007-08 2009-10

FDI INFLOWUS$ 2.7 billion US$ 3.7 billion US$ 5.46 billion US$ 19.5 billion US$ 24 billion US$ 26.5 billion

SHARE OF REAL ESTATE4.5% 10.6% 16%

CONCLUSIONThe evolution of FDI has been divided into two waves: First Wave covering the period 1975-90 Second Wave covering the period 1991 onwards. The new current and benefits brought by the FDI development in Indian real Estate Sector is not improving the major poor population in India. If there are some schemes allowing this section of population to get benefit from the new real estate developments brought by FDI it would have been better.