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Foreign Direct Investment (FDI) in Real Estate

The FDI Policy is relevant to foreign entities seeking to establish an Indian presence either by setting up a wholly owned company in India or joint venture with an Indian Partner or acquiring a stake in an existing Indian Company.

Over the last two decade, the government of India has significantly liberalized the FDI Policy for foreign investment in India. Currently, the FDI Policy permits up to 100% foreign investment in most sectors, including service sector.

Under the current FDI Policy, foreign investment is permitted by all categories of investors and in all sectors except the prescribed prohibited sectors. Apart from these prohibited sectors, foreign investments can be made in other sectors under:

  1. Automatic route, i.e., no prior approvals

  2. Government Approval route, i.e., concerned administrative Ministry/Department would be the Competent Authorities for the grant of post-facto approval for foreign investment.

Indian Real Estate Sector:

The contribution of real estate sector to India’s GDP is estimated to be about 11% by 2020. This sector is consisting of housing, retail, hospitality and commercial which play a major role in building Indian infrastructure. The market size of Indian real estate sector is estimated to reach US$180 billion by 2020.

FDI is prohibited in real estate business however, “Real estate business” for such purposes does not include development of townships, construction of residential / commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014. Further, earning of rent/ income on lease of the property, not amounting to transfer, will not amount to real estate business.

Construction Development: Townships, Housing, Built-up Infrastructure:

FDI in Construction-development projects (which would include development of townships, construction of residential/commercial premises, roads or bridges, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure, townships) is 100% under Automatic Route but subject to the following conditions:

  • A foreign investor will be permitted to exit and repatriate foreign investment before the completion of project under automatic route, provided that a lock-in-period of three years. The said condition is not applicable in case transfer from one non-resident to another non-resident.
  • The project shall conform to the norms and standards.
  • The Indian investee company shall be responsible for obtaining all necessary approvals, including those of the 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 concerned.
  • The State Government/Municipal/Local Body concerned, which approves the building/development plans, will monitor compliance of the above conditions by the developer.

Key points - required to consider by Foreign Investor:

The Foreign Investor in Construction Development: Townships, Housing, Built-up Infrastructure etc. required to consider the following:

  • Land Title - Official record of who owns a piece of land
  • Industry Status – Residential, commercial etc.
  • Manpower and Material Requirement – Labour, local material etc.
  • Source of Finance – Equity, foreign debt, local debt etc.
  • Approvals - building/development plans, environment etc.


- As on 1st July 2019