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Foreign Direct Investment in Indian Real Estate. Dynamics of the Real Estate Market Dun and Bradstreet Chennai March 2007 Ashwin Ramesh Primary Real Estate Advisors. REITs/ REMFs. FDI in real estate further relaxed . Real Estate VCFs. Opening of FDI in select projects.

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Foreign direct investment in indian real estate
Foreign Direct Investment in Indian Real Estate

Dynamics of the Real Estate Market

Dun and Bradstreet


March 2007

Ashwin Ramesh

Primary Real Estate Advisors

The road so far


FDI in real estate further relaxed

Real Estate VCFs

Opening of FDI in select projects

Investment norms NRIs relaxed

The Road so far

April 2004 Amendment to VCF & FVCI Regulations removing RE from negative list

Banks – inv. in VCF priority sector

Press Note 2 (2005)

Real Estate Mutual Funds


  • Press Note 4 (2001)

  • FDI in integrated township (100 acres)

  • FDI in hotels & tourism

  • FDI in IT Parks (2002)



  • Press Note 2 (2000)

  • FDI by NRI in housing & RE



Regulatory framework press note 2 2005
Regulatory framework - Press Note 2 (2005)

FDI up to 100% is permitted under automatic route

Development criteria:

  • Minimum 10 hectares / 25 acres to be developed for serviced housing plots

  • For construction-development projects, minimum built-up area of 50,000 sq mts

  • In case of a combination project, any one of above two conditions would suffice

Foreign direct investment in indian real estate

Investment conditions

  • Minimum capitalization of US$ 10 Mn for wholly owned subsidiaries & US$ 5 Mn for joint ventures with Indian partners

  • Funds to be brought in within 6 months of commencement of business

  • Original investment cannot be repatriated before a period of 3 years from completion of minimum capitalization. Investor may be permitted to exit earlier with prior Government approval.

Other conditions
Other conditions

  • At least 50% of project must be developed within 5 years from date of obtaining all statutory clearances

  • Investor not permitted to sell undeveloped plots

  • Project to conform to norms & standards laid down by respective State authorities

  • Investor responsible for obtaining all necessary approvals as prescribed under applicable rules/ bye-Laws /regulations of the State

  • Concerned Authority to monitor compliance of prescribed conditions by developer.

Press note 2 2005 unresolved issues
Press Note 2 [2005] - Unresolved issues…..

  • What sort of development is envisaged – Greenfield / Brownfield

  • Up to what stage in a project can a FDI investor participate?

  • What comprises ‘built-up area’?

  • Whether USD 5 Mn investment norm applies to each foreign investor in a joint venture (‘JV’) separately or to foreign investors for the JV company as a whole ?

    - If two foreign partners invest in Indian JV Company: minimum capitalization will be USD 5 million or USD 10 million ?

Press note 2 2005 unresolved issues contd
Press Note 2 [2005] - Unresolved issues Contd…

  • Whether lock in applies only to minimum capitalization or entire original investment?

  • When does the 6-month period for capitalization commence with respect to projects undertaken by existing companies and how is the lock in period determined?

    – Incorporation Date - January 1, 2006

    – Signing of the JV agreement - April 1, 2006

    – Minimum capitalization to be completed by what date?

Press note 2 2005 unresolved issues contd1
Press Note 2 [2005] - Unresolved issues Contd…

  • – Assuming minimum capitalization completed June 1, 2006

  • – 1st tranche of USD 10 million brought in June 1, 2006

  • – 2nd tranche of USD 100 million brought in January 1, 2007

  • – Lock in period on what amount and for what period ?

  • Whether premium on issue of shares part of minimum capitalization?

  • Whether fully convertible debentures can be considered for the purpose of minimum capitalization?

Fdi vs fvci deadlock continues
FDI vs. FVCI ….deadlock continues

  • Does FVCI need to follow FDI restrictions ?

  • Since September 2005 no new FVCIs

  • RBI fears asset bubble, wants to restrict capital flows into real estate

  • FDI Investments under automatic route pour in

  • Exit pricing restrictions apply, market believes they will fade away

Impact of fdi
Impact of FDI

  • So far, negligible

    About USD 750 Million deployed

  • Potential, huge

    Another USD 7 – 8 Billion waiting in the wings

Some recent transactions
Some recent transactions

Companies USD Mn

Morgan Stanley–Oberoi Constructions 152

Citigroup Property Investors- 120

Gera Developments

Och Ziff-Nitesh Estates 60

DSP Merrill Lynch-Mantri Developers 55

Morgan Stanley-Mantri Developers 65

Morgan Stanley- Alpha G Corp 65

Indian realty companies listed on aim
Indian Realty Companies Listed on AIM

Name of the Company Amount Raised (US$ Mn)

Unitech Corporate Parks Plc (Unitech Ltd) 360

Trinity Capital Ltd 450

Ishaan Real Estate Plc ( K Raheja Corp ) 350

Dev Properties Ltd (Indiabulls Real Estate Ltd) 265

Noida Toll Bridge 50

Hiranandani Constructions Ltd 750

Impact on real estate consumers
Impact on real estate consumers

  • Combined with a conducive land supply and approvals environment, and infrastructure, FDI can create high quality real estate stock of international specifications at reasonable prices

  • Better choice, better use of technology, international amenities and planning

  • Compared to 1991, don’t we have today much better cars, motorcycles, telephone systems, white goods ?

Impact on developers
Impact on developers

  • Professionalise

  • Accountable

  • Raise the bar

  • Adopt global best practices

  • Attain size and scale

  • Change their mindset

  • Improve or perish

Deal structuring layered process
Deal Structuring – Layered process

  • Agreement – Fund and Developer – key issues

    • Affirmative Voting Rights

    • Reserved Matters

    • Indemnification against third party claims

    • Debt raising

    • Non Compete

    • Liquidation Event

    • Dispute Resolution

    • Tag Along

    • Exit

Impact on the industry
Impact on the industry

  • Consolidation

  • Standardisation of product

  • Tighten and improve supply chain

  • Convergence of capital markets

  • Increased participation by the finance community – sophisticated

    structuring, instruments, retail investor

  • Environment friendly

  • Westernised

First the roadblocks need to be cleared
First, the roadblocks need to be cleared

  • Land supply laws

  • Land Zoning and Approvals Process

  • Infrastructure – hard and soft

  • Stable policy that is forward looking

Contact details
Contact details

If you would like any further information or clarifications, please contact:

Name E-mail Tel No.

Ashwin Ramesh 91-22-2285 3032

91-98210 40267

Address: Primary Real Estate Advisors P Ltd

Regent Chambers, #107,

Nariman Point,

Mumbai – 400 021


Disclaimer terms of use
Disclaimer - Terms of Use

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  • The content provided here treats the subject and issues covered herein in generic form and is purely for academic purposes only

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  • This presentation should not reproduced or distributed or provided to others without the prior consent of Primary Real Estate Advisors Private Limited.