15 November, 2015

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FDI Changes in Real Estate and Construction Sector

FDI Changes in Real Estate and Construction Sector | Radical Changes in FDI Regime in Construction Development Sector

CA Ankit Gulgulia (Jain) 

Following changes have been made in the FDI policy on Construction Development sector:

a) Conditions of area restriction of floor area of 20,000 sq. mtrs in construction development projects and minimum capitalization of US $ 5 million to be brought in within the period of six months of the commencement of business, have been removed.

b) Each phase of the construction development project would be considered as a separate project for the purposes of FDI policy.

c) 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, calculated with reference to each tranche of foreign investment has been completed.

Further, transfer of stake from one non-resident to another nonresident, without repatriation of investment will neither be subject to any lock-in period nor to any government approval. Nonetheless, exit is permitted at any time if project or trunk infrastructure is completed before the lock-in period.

d) FDI is not permitted in an entity which is engaged or proposes to engage in real estate business, construction of farm houses and trading in transferable development rights (TDRs).

Real Estate Business will mean as ‘dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.

Further, earning of rent/ income on lease of the property, not amounting to transfer, will not amount to real estate business.’

e) Condition of lock-in period will not apply to Hotels &Tourist Resorts, Hospitals, Special Economic Zones (SEZs), Educational Institutions, Old Age Homes and investment by NRIs.

f) 100% FDI under automatic route is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres. Consequent to foreign investment, transfer of ownership and/or control of the investee company from residents to non-residents is also permitted.

However, there would be a lock-in-period of three years, calculated with reference to each tranche of FDI, and transfer of immovable property or part thereof is not permitted during this period.

g) "Transfer", in relation to FDI policy on the sector, includes,—

a. the sale, exchange or relinquishment of the asset ; or (b) the extinguishment of any rights therein ; or (c) the compulsory acquisition thereof under any law ; or

b. any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (e) any transaction, by acquiring shares in a company or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of, any immovable property.

About the Author

CA Ankit Gulgulia (Jain) is a practicing Chartered Accountant in New Delhi. He Specialises in Indirect taxes, Corporate Laws, FEMA and Transfer Pricing. He Can be Reached at ankitgulgulia@gmail.com or +91-9811653975

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