Q1.: Are there projects coming up in the Indian real estate that offers good value to not just NRIs but PIOs and foreigners? What are the kinds?
Ans.: In March 2006, there was relaxation of FDI in the construction development sector which seeks to give NRIs, PIOs and all foreigners equal opportunity with their Indian counterparts in the Indian real estate sector; and a lot to look forward to. There is a need for guidelines set for FDI investment as real estate cannot be just bought and sold. For selling it, one has to develop it, construct upon it or fulfill the criteria of one year of minimum development.
NRIs, PIOs who needed government approval prior to construction development; and foreigners who were not permitted earlier can now invest in land, buy it, construct upon it or just develop it, sell constructed buildings or just developed plots. Automatic flow of FDI is allowed for the housing sector, townships, housing, commercial area, and infrastructure development.
Also, restrictions in terms of minimum area of land, minimum number of units etc has been done away with.
Q2.: Does your construction development work need to meet any specific target?
Ans.: In normal circumstances the project can be completed within three years. However, it has set five years as the time to finish at least 50% of your project from the date of getting all your clearances. This implies that the norms are liberal and helps protect the customer and keeps off fly- by -night people.
Q3.: How does the automatic route work?
Ans.: The cumbersome investment process has been simplified by the automatic route. Approval from the Reserve Bank is not required anymore, and there is no requirement to go to Foreign Investment Paper Board which has lead to easing of paper work. This convenience and easy handling has given a boost to overseas investor confidence for investing in India.
Q4.: What are the aspects should an NRI investor look at in the Indian real estate market to facilitate the suitability of their projects?
Ans.: An NRI before investing in the real estate market in India should focus on the particular segment that he plans to invest in - like residential, retail or office space. It has to be remembered that the decision will be important as it will have long-term implications thus it would be more secure to consult legal firms and real estate firms providing NRI services.
Q5.: Please list out the recommended steps an NRI should follow for getting all the clearances and going about it in a hassle-free way and whom should one meet in the process?
Ans.: It depends on the segment you want to invest in. It helps one to gauge the future state and to know what utilities are available if one is eying investment.
For example an office market investment would require that you to:
1. first get in touch with consultants for advice on the city of choice and give him your objective, the size of their investments and the returns you are expecting should be clear when starting out.
2. The yield that has evolved from distinct parameters is in the range of 8-8.5% to 12% for office space and 4% to 6% in residential.
3. The deciding factor is whether the land is for investment or set to develop and as is the local demand-supply situation.
4. The availability and quality of infrastructure or utilities such as the power situation, connectivity, security facility and long-term future plans need to be scrutinized while investing in India.
Q6.: Is it possible to get a one window clearance in Indian real estate?
Ans.: Single window in a real estate project in India sometimes may be difficult, Due to the involvement of several authorities a single window in a real estate project in India sometimes may seem to be difficult. For instance if a building has to be constructed, and if it's a multi-storied building, clearance from town planning people, clearance on design and then lifts, fire fighting agencies etc are all mandatory. Efforts are onto make the process far simpler and transparent, though.
Q7.: Is there any difference between a sanctioning authority and monitoring authority in India?
Ans.: Yes there is a difference. It varies from state to state:
* In some states in India, the Municipal authority is the ultimate monitoring authority.
* In smaller states or in non-urban areas, the town and country planning authority acts as the monitoring authority and not the Municipal Authority.
* In urban areas where most of the construction takes place, the municipal authority wields power in giving the final permission and sanctioning drawings and plans. This demands clearances from electricity, water supply etc.
Q8.: According to the new FDI norms, the minimum investment has to be 5 million USD for 51% shareholding, does this include funding of the subsidiaries as well?
Ans.: It varies on the basis of whether it is a wholly owned subsidiary or a joint venture. In case of a wholly owned subsidiary by a foreign company, then the minimum capitalization norm is 10 million USD and if you have a joint venture then, it is immaterial that the ratio is 74:26 or 51:49. For a joint venture the minimum capitalization is 5 million USD in foreign exchange. Also, the minimum amount of foreign exchange is required to arrive within six months of the date of commencement of business. The six months can be used to bring that money into India.
Q9.: Are joint ventures better possibilities or do they give unfair competition?
Ans.: Healthy competition has always been important and good. In the case of FDI, joint venture definitely seems the wiser route to take as it has tremendous scope.
The Indian partner would always be able to provide inputs in terms of information on land, clearances, where the foreign investors can put their money and technology judiciously; and opportunities where both together would compliment each other.
Q10.: So does that imply that, joint ventures are the best investment option in Indian real estate development scenario?
Ans.: Presently the big foreign investors which are coming into India are interested in joint ventures. As we can see, the first couple of transactions or strategies have gone this way and large joint ventures have been struck. In the initial years of FDI inflow into real estate in India, as trends show, will come through joint ventures. This will help the foreign investors test the Indian markets, and will assure more confidence for business in India.
The current efforts augur well for the coming years of the Indian real estate industry with respect to investment and developments. However, the role of improved infrastructure and fast reform process, computerization of land records, better tax rules, and more transparency in the sector cannot lose importance
Q11.: What are the two or three major things which are needed to be kept in the mind in order catapult the things in the next 5 to 10 years?
Ans.: Since the relaxation of FDI in the construction development sector the response has been has been very optimistic. This will have a multiplier effect on the economy.This would include several aspects such as - technology that is going to come in and the associated infrastructure that will be built. This will have its effect on the development because it will trigger the associated industries. It would also create job opportunities for unskilled, semi-skilled workers, artisans, engineers, architects and the like.
Q12.: What about Investment Property and Rental Income?
Ans.: NRIs can freely rent out property in this case the source of acquisition of property not significant. They can freely repatriate rental income without prior permission. Tax would be deducted at source on rental income; rental income can be freely adjusted against home loans.
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