This article has been written by Ms. Geetu, a 2nd Year student of Geeta Institute of Law, Panipat.

This article is all about the foreign direct investment (FDI) and how it works in sectors of Real Estate and Construction as well as the Legal Implications of FDI in Real Estate and Construction. The foreign direct investment as the name suggests itself means the form of investment in which the investor invests his/her income or have an interest in an enterprise resides in a country other than that of the investor’s own country.

What is FDI?

  FDI is a short form for the term Foreign Direct Investment, which means a person or company can have an access to make an investment directly in an enterprise in the foreign country or any country other than that of the investor’s own.

Definition of FDI

According to the IMF and OECD definitions, direct investment reflects the aim of obtaining a lasting interest by a resident entity of one economy (direct investor) in an enterprise that is resident in another economy (the direct investment enterprise). The “lasting interest” implies the existence of a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence on the management of the latter.

What Is Real Estate?

Real estate is defined as the land and any permanent structures, like a home, or improvements attached to the land, whether natural or man-made.

Real estate is a form of real property. It differs from personal property, which is not permanently attached to the land, such as vehicles, boats, jewelry, furniture, and farm equipment.

Foreign Direct Investment (FDI) in Real State Sector in India

The Government introduced Foreign Direct Investment (FDI) in Real Estate sector through a notification issued by DIPP and department of industrial policy and promotion. The department allowed 100% Foreign Direct Investment to develop the real estate sector, such as township, housing, commercial premises, cities, resorts, industries, etc. However, this was subject to the prior approval of the Foreign Investment Promotion Board or FIPB. 

Regulators governing Foreign Direct I(FDI) in Real Estate sector 

The following regulators governs Foreign Direct Investment (FDI) in Real Estate sector –

• The Foreign Direct Investment Policies.

• The Reserve bank of India (RBI).

• Foreign Exchange Department (transfer/issue of security by a person resident outside India) Regulations, 2000.

FDI in Real Estate: Basic Guidelines

The Department of Industrial Policy and Promotion (DIPP), vide Press Note No. 2 (2005), has permitted FDI up to 100% under automatic route in townships, housing, built-up infrastructure and construction development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure facilities, such as roads and bridges, transit systems etc.), subject to the following guidelines:

1. The minimum area to be developed under each project would be as follows:
2. a) In case of development of serviced housing plots, a minimum land area of 10 hectares.
3. b) In case of construction development projects, a minimum built-up area of 50,000 sq.mts.
4. c) In case of a combination of the above two projects, any one of the above two conditions would suffice.
5. The minimum capitalization norm shall be US$ 10 million for a wholly owned subsidiary and US$ 5 million for joint ventures with Indian partner/s. The funds would have to be brought in within six months of commencement of business of the company.
6. Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. However, the investor may be permitted to exit earlier with prior approval of the Government through the Foreign Investment Promotion Board (FIPB).
7. Development of at least 50% of the integrated project has to be completed within a period of five years from the date of obtaining all statutory clearances. The investor would not be permitted to sell underdeveloped plots (underdeveloped connotes, where roads, water supply, street lighting, drainage, sewerage and other conveniences as applicable under prescribed regulations, have not been made available). The investor must provide this infrastructure and obtain the completion certificate from the concerned local body/service agency before being allowed to dispose of the serviced housing plots.
8. The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities as laid down in the applicable building control regulations, by-laws, rules and other regulations of the State Government / Municipal / Local Body concerned.
9. The investor 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 Body / Local Body concerned.
10. The State Government / Municipal / Local Body concerned, which approves the building / development plans, will monitor the developer’s compliance to the above conditions.

Foreign Direct Investment (FDI) and Growth in Real Estate

Foreign Direct Investment (FDI) can have a positive impact on real estate growth. When foreign investors put their money into the real estate sector, it can lead to increased construction, improved infrastructure, and job creation. This can boost the overall growth and development of the real estate industry. It’s pretty cool how international investments can make a difference.

Challenges faced in attracting Foreign Direct Investment (FDI) for Real Estate

Attracting FDI for real estate does come with its own set of challenges. Some common ones include:

1. Regulatory hurdles: Different countries have different regulations and policies regarding FDI in real estate. These regulations can sometimes be complex and may discourage foreign investors.
2. Economic and political stability: Investors often look for stable economic and political environments before investing. If a country faces instability or uncertainty, it can deter foreign investment in the real estate sector.
3. Legal framework: A well-defined legal framework that protects the rights of foreign investors is crucial. Inadequate legal protection can make investors hesitant to invest in real estate.
4. Market knowledge and transparency: Lack of market knowledge and transparency can make it difficult for foreign investors to assess the potential risks and returns of investing in a particular real estate market.
5. Cultural differences: Cultural differences can also pose challenges in attracting FDI. Understanding the cultural nuances and preferences of foreign investors is important for successful investment attraction.

Despite these challenges, countries can work on improving their investment climate and addressing these concerns to attract more FDI in the real estate sector. It’s all about finding ways to make it more attractive for foreign investors.

What is Construction?

Put simply, whenever something is being built, we say it is ‘under construction’, so it’s the action of building something. The word construction has its roots in the Latin word construere, which itself has roots in com-, meaning “together,” and struere meaning “to pile up.” In addition to the building of property, the noun construction also refers to the building trade itself. If you work for a company that builds things — from offices to houses and bridges to dams — you work in construction, whether you are a carpenter at the work site or the secretary who schedules the jobs.

Foreign Direct Investment (FDI) in Construction sector in India

FDI in the construction sector in India has been instrumental in driving growth and development. With FDI, there has been an infusion of capital, advanced technology, and expertise in the construction industry. This has led to the construction of modern infrastructure, such as highways, airports, and smart cities. FDI has also contributed to job creation and skill development in the construction sector. It’s exciting to see how foreign investment can positively impact the construction industry in India.

What are some major FDI projects in the construction sector?

There have been several significant FDI projects in the construction sector in India. Some noteworthy ones include:

1. Delhi-Mumbai Industrial Corridor (DMIC): This ambitious project aims to develop industrial zones, smart cities, and transportation infrastructure along the Delhi-Mumbai corridor. It has attracted substantial FDI and is expected to boost economic growth.
2. Gujarat International Finance Tec-City (GIFT City): GIFT City in Gujarat is a global financial and IT services hub. It has received significant FDI and is designed to provide state-of-the-art infrastructure and facilities for businesses.
3. Navi Mumbai International Airport: The construction of the Navi Mumbai International Airport has seen substantial foreign investment. This project aims to enhance air connectivity and boost economic development in the Mumbai metropolitan region.
4. Chennai-Bengaluru Industrial Corridor (CBIC): The CBIC project focuses on developing industrial clusters, logistics infrastructure, and smart cities along the Chennai-Bengaluru corridor. It has attracted FDI and aims to promote economic growth in the region.

These are just a few examples of major FDI projects in the construction sector. It’s impressive to see how these projects are shaping the infrastructure landscape in India.

Impact of FDI on Job creation in the Construction sector

• let’s talk about the impact of FDI on job creation in the construction sector. Foreign direct investment (FDI) has played a significant role in generating employment opportunities in the construction industry in India. 

• When foreign investors invest in construction projects, it leads to the development of new infrastructure, such as roads, bridges, airports, and buildings. This, in turn, creates a demand for skilled and unskilled labor, including engineers, architects, construction workers, and support staff.
• FDI projects often require a large workforce, both during the construction phase and for ongoing maintenance and operations. This creates employment opportunities for local communities, contributing to job creation and economic growth.
• Additionally, FDI brings in advanced technology, practices, and expertise to the construction sector. This helps in upskilling the local workforce and promoting knowledge transfer. As the construction industry grows, it stimulates demand for related sectors like manufacturing, logistics, and services, further boosting employment prospects.
• Overall, FDI in the construction sector has a positive impact on job creation, providing opportunities for both skilled and unskilled workers and contributing to the overall development of the economy. It’s exciting to see how foreign investment can drive employment growth in the construction industry.

Conclusion

The Construction/ Real Estate sector is one of the most critical sectors of the Indian economy due to its huge multiplier effect on the economy. Any impact on the Real Estate sector has a direct bearing on economic growth. Due to the well-acknowledged need for foreign investments into this sector because of the sheer demand, the Foreign Direct Investment (FDI) route has attracted foreign investors’ interest in this sector.

References

• This Article was originally published on https://www.investopedia.com/terms/r/realestate.asp website. The link for the same is herein.
• This Article was originally published on https://www.sethassociates.com/foreign-direct-investment-in-real-estate-in-india.html website. The link for the same is herein.
• This Article was originally published on https://www.vocabulary.com/dictionary/construction website. The link for the same is herein.
• This Article was originally published on https://taxguru.in/rbi/fdi-construction-development-sector-india.html website. The link for the same is herein.