Real Estate Investments 


Foreign investment in India is regulated by provisions of the Foreign Exchange Management Act, 1999 (“FEMA”) and the rules and regulations issued there under by the Reserve Bank of India (“RBI”) or Central Government, as the case may be. The Indian exchange control laws envisage three regimes for foreign investment in real estate in India. One regime is available for all kinds of non-residents and subject to satisfaction of various conditions, such as minimum area to be developed, minimum capitalization requirements, lock in with respect to the original investment, timeline for completion of the project, etc. (“FDI Regime”). The other regime is available only for Non Resident Indians (“NRI Regime”).  The NRI Regime allows NRIs to invest up to 100% in Indian companies engaged in housing and real estate and not subject to any kind of restriction such as minimum area, lock-in etc. In addition, there is a third regime which permits a Person of Indian Origin (“PIO”) or person resident outside India who is an Indian citizen to acquire immovable properties other than agricultural property, plantation or a farm house in India (“PIO Regime). The PIO Regime is also subject to certain restrictions regarding the payment of purchase price, repatriation etc.


The FDI Regime is available for all kinds of non-residents. Press Note 2, dated March 3, 2005, issued by the Central Government regulates investment under this regime. Press Note 2 permits FDI 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), through the automatic route, subject to satisfaction of various conditions, which shall inter-alia include:

  • Minimum area to be developed under each project would be (i) a minimum land area of 10 hectares in the case of serviced housing plots (against the earlier requirement of 100 acres); (ii) a minimum built-up area of 50,000 square meters in the case of construction-development projects (against the earlier requirement of 2,000 dwelling units) and (iii) in the case of combined project, any one of the above two conditions would suffice.
  • Minimum capital infused by the non-resident investor of USD 5 Million in case the investee company is a joint venture with an Indian partner and USD 10 Million in case the investee company is a Wholly Owned Subsidiary of the non- resident. Further, the minimum capitalization amounts have to be brought into India within six months of commencement of business.
  • Lock in of the original investment of the non-resident investor for a period of 3 years from the date of completion of the minimum capitalization. However, the non-resident may be permitted to exit earlier with the prior approval of the Government of India through FIPB.
  • Timeline for completion of the project, etc.

The NRI Regime is provided in the Foreign Direct Investment Scheme under the FEM (Transfer and Issue of Security by a Person Resident Outside India) Regulations, 2000.The FDI Scheme allows NRIs to invest up to 100% in Indian companies engaged in the activities of housing and real estate. This includes  development of serviced housing plots and construction of built-up residential premises, investment in real estate covering construction of residential and commercial premises including business centers and offices, development of townships, city and regional level urban infrastructure facilities including both roads and bridges, investment in manufacture of building materials, etc. The Client can carry on the above activities by setting up a company in India. One of the advantages of this regime is that it does not prescribe criteria such as minimum area to be developed or minimum capital to be infused etc, which is applicable in case of investment under FDI Regime.  It should be noted that only NRIs, who are investing directly in to India, are permitted to avail of these facilities and not other kinds of non-residents. Further, there is no restriction on repatriation of fund by the Company to the client under the NRI Regime


FEM (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 permits a person resident outside India who is a citizen of India or a PIO to acquire immovable property other than agricultural property, plantation or a farm house in India. The Regulations also permit the PIO or the Indian citizen who is resident outside India to transfer such immovable properties by way of sale to a resident Indian citizen. In order to invest under the PIO Regime, the PIO or non-resident Indian citizen has to directly invest in immovable properties in India. These benefits will not be available to him, if he is investing through an Indian company.

There are certain restrictions with respect to payment of purchase price and repatriation of sale proceeds of such immovable property under this regime. The Regulations provide that in the case of purchase of immovable properties, payment of purchase price shall be made out of (i) funds received in India through normal banking channels by way of inward remittance from any place outside India; or (ii) funds held in any non-resident account maintained in accordance with laws in India. Further, the Regulations prohibit payment of purchase price by traveler’s cheque or by currency notes of any foreign country or by any other mode not specifically permitted under the Regulations.

With respect to repatriation of sale proceeds of such immovable properties, the authorized dealer (bank) in India has to satisfy the following conditions before allowing such repatriation.

  • The immovable property was acquired by the seller in accordance with this Regulations or the foreign exchange law for the time being in force at the time of acquisition.
  • The amount to be repatriated does not exceed (a) the amount paid for the acquisition of the immovable property in foreign exchange received through normal banking channels or out of foreign funds held in Foreign Currency Non-Resident Account, or (b) the foreign currency equivalent, as on the date of payment, of the amount paid where such payment was made from the funds held in Non-Resident External account for the acquisition of the property; and
  • In case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
  • NRIs are permitted to repatriate up to USD 1 million per year from any balance in non-resident ordinary account.
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