Real Estate in India is one of the country’s largest contributors to employment and the GDP – with an estimated growth spurt over in the upcoming decades. Historically, it was one of the most strictly protected and guarded sectors – with heavy regulations and rules to avoid speculations and restrict foreign involvement and investment. However, over the last two decades, the Government of India has taken diligent and strategic steps to liberalise the industry. It is essential to understand who can purchase immovable property in India to understand what changes have been made; persons other than residents, such as non-resident Indians and foreign nationals of Indian origin can purchase, while foreign nationals of foreign origin can only acquire property by way of inheritance or lease (for no more than 5 years). The concern of Foreign Direct Investments relates to foreign companies and not individuals, however – which begs the question – can they procure immovable property?
In the past, foreign investors were only permitted to invest, through a wholly owned subsidiary or joint venture with an Indian partner, in the development of townships or settlements. However, in a monumental move, a Press Note issued in 2005 by the Ministry of Commerce and Industry, a distinction was drawn between construction and real estate – allowing the formerly forbidden foreign investment into the sector. This meant that subject to certain conditions, 100% of FDIs under the automatic route were allowed in various areas such as housing, townships, construction development projects including resorts, hospitals, educational and recreational institutions, city and regional infrastructures, and more.
However, it was essential that certain guidelines be followed:
Despite the leaps and bounds of progress that has been made in the real estate and FDI relationship, there is a barrage of grey areas left untouched by the law and the government, leading to confusion and overlaps. FDI in completed assets is not permitted if the intent of the investor is to transfer the property – however if the intent is to earn income via rent. In this light, there are questions as to whether the current FDI norms are indeed liberal or if they have remained conservative.
The only possible solution appears to be a complete restructuring of FDI policies and norms – especially considering the damages that have been caused by the COVID-19 pandemic to the real estate industry. The new policy will ideally comprise regulations regarding FDIs for completed assets as well; allowing for the real estate industry to develop further by way of foreign investments