Sushil Kumar, a Non-Resident Indian based in Austin, Texas bought a 1000 sq feet flat in New Delhi, India costing Rs. 35 Lakhs in 2004. At that time he was upset with the fact that he was over-paying for it but today he not only has the worth of the flat more than double, however in addition to this he is truly elated that this real estate investment is giving him such good return. This example very clearly sums up the Indian Real Estate Market of today. According to the recent trends, the Indian property market is not only flourishing, but growing by leaps and bounds. Research data estimates that the Indian Real Estate Market is expected to grow from the current 14 billion dollars to 102 billion dollars in the next 10 years.

After the September 11 incident in the US, investments in Indian markets have gained momentum. India has encouraged Non Resident Indians (NRI’s) and Foreign Investors by giving them tax incentives and relaxation of foreign direct investments (FDI) rules. The RBI has further relaxed the rules for NRI’s with respect to returning of foreign exchange in real estate investments. In addition to being one of the safest destinations, India now offers 15 to 25 per cent returns which are conceivably the highest in the world. Mumbai alone accounts for 30 percent of the Indian real estate business in India.

Foreign Investment (FDI) in Real Estate Sectors in India

Initially only NRI's and PIO's were the only ones who were allowed to invest in housing and real estate sectors. Foreign investors except NRI’s were permitted to invest only in the improvement of integrated township projects and that too through a wholly-owned subsidiary or a joint venture company with a local partner.

NRI’s can now purchase, rent and transfer residential/ immovable property in India. However, the set of laws do not permit the NRIs and PIO’s to attain property like agricultural land, cultivated area and farm houses in India. However they can take the rental income of the property situated in India.

The NRI/PIO can use their own funds to buy immovable property; excluding the option of availing home loans from banks for this purpose. The NRI's ‘own funds’ refer to the money received in India by way of private transfer of funds from abroad, out of the income earned there including the personal savings outside India. These funds can be transferred through Non-Resident External (NRE), Non-Resident Ordinary (NRO) or Non resident foreign currency bank accounts.

Moreover, they can dispatch earnings from sale outside India for a maximum of two properties held here without taking any permission from RBI. The transfer of funds for subsequent properties requires RBI's approval. In case the property is bought from an Indian account, the remittance depends entirely on the nature of the holding period of the property.

Conditions for Foreign Investment in Real Estate Sector in India

Foreign Direct Investment in some of the areas (not all) is subject to some conditions, some of which are stated as follows:

1. The development of a minimum land area of 10 hectares for housing plots, and a minimum developed area of 50,000 sq m in case of construction projects is necessary. ‘Built-up’ or ‘developed’ is not properly defined but FSI (Floor Space Index) or FAR (Floor Area Ratio) can be used as the source for the same.
2. To fulfill the minimum capitalization limit of $10 million for a wholly-owned subsidiary and $5 million for Joint Ventures is the mandatory requirement and these funds should be brought in India within six months of the initiation of business (as defined in the contract).
3. To complete 50% of the project work in the time period of five years from the date of receiving all clearances.