India’s foreign investment policy prohibits any sort of foreign investment in real estate business. “Real estate” business means dealing in land and immovable property with a view to earning profit or income. However, “township business”, including the development of townships and the construction of residential/commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, and townships, is specifically excluded from real estate business.
By press note 10/2014, notified on 8 December 2014, the foreign investment policy with respect to township business was intended to be relaxed. The Indian company is now required to bring in a minimum of US$5 million in foreign investment (previously US$10 million) within six months of commencement of the project.
Investors consider the revised limit still to be high. Further, while the earlier regime provided an exit after a minimum lock-in period of three years, now a foreign investor is permitted to exit on completion of the project or after development of trunk infrastructure, which will be determined by government departments, resulting in uncertainty.
The government is also empowered to permit repatriation of investment or transfer of stake by one non-resident investor to another non-resident investor before the completion of the project on case-to-case basis, resulting in more uncertainty.
Yogesh Chande is an associate partner and Bhavin Gada is a senior associate at Economic Laws Practice. Manendra Singh, associate, helped with the research. This article is intended for informational purposes and does not constitute a legal opinion or advice.
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