In a growing economy, Real Estate sector invites a lot of attention from all quarters including foreigners. India has a policy for non-residents which invites them to invest in the Construction and Development sector. For investment in independent premises, the policy is open only for NRIs.

Non-residents are permitted to invest in Real Estate Development activity through Indian companies. Investment through LLPs, partnership firms, branch, or any in any other manner is not permitted. Direct business by non-residents is not permitted. The investment is subject to a few conditions discussed in subsequent paragraphs.

• USD 1 Trillion investments for infrastructure sector projected during 2012-17
• USD 650 Billion investments in urban infrastructure estimated over next 20 years.
• 100% Foreign Direct Investment (FDI) permitted through the automatic route for townships, cities.
• Construction sector contributes towards 8% of the Indian GDP (at constant prices). Last five year estimates (2006-07 to 2010-11).
• Additional Fact: increased to 3.85 lakh crore (7.9% of the total GDP) in 2010-11 from 284798 crore (8% of the total GDP) in 2006-07.
• Additional Facts: Growth rate for GDP in construction 8.1%
• 100 Smart Cities and 500 AMRUT Cities will invite investment of 2 Trillion Rupees in the next five years.
• INR 62,009 Crore. would be invested under Swachh Bharat Mission (SBM) in urban areas.
• Construction sector in India will remain buoyant due to increased demand from real estate and infrastructure projects.
• An investment of USD 1 Trillion has been projected for the infrastructure sector until 2017, 40% of which is to be funded by the private sector. 45% of infrastructure investment will be funnelled into construction activity and 20% set to modernise the construction industry.
• Construction activities contribute more than 8% of India’s GDP.
• USD 650 Billion will be required for urban infrastructure over the next 20 years.
• Some of the large government projects offer significant up-side thrust.
• 70% of the funding under SBM will be mobilised largely from private sector.
• Second largest employer and contributor to economic activity, after agriculture sector. The construction sector accounts for second highest inflow of FDI after the services sector and employs more than 35 Million people
• 50% of the demand for construction activity in India comes from the infrastructure sector, the rest comes from industrial activities, residential and commercial development etc. The Indian construction industry is valued at over USD 126 Billion.
• Indian cities contribute significantly to India’s GDP. As per a mid-term appraisal in 2012, the urban share of the GDP was 62% – 63% in 2009-10. This was further projected to increase to 70% – 75% in 2030.
• In 2001, about 286 Million were living in urban areas across India. It had the second largest urban population in the world. As per the Indian Census, 2011, the urban population had increased to 377 Million, thereby registering a growth of around 32%. As per recent estimates, nearly 590 Million people will live in Indian cities by 2030.
• Between 2005-08, the real estate sector grew by about 30% annually before slowing down significantly due to a 2008 global financial crisis. It grew by about 8% between 2009-11 and 6.5% in 2012-13.
• As per industry estimates, the Indian real estate market is estimated to be approximately USD 78.5 Billion in 2013 and is expected to grow to approximately USD 140 Billion by 2017.
• According to FICCI-EY Real Estate Report 2013, India’s real estate requires about USD 42 Billion (excluding housing for economically weaker sections) in investments by 2015. Residential real estate alone will require an investment of USD 29 Billion.
• Nearly half the additions to the Indian labour force over the period 2011-30 will be in the age group 30-49, adding to the demographic dividend.
• The share of output and employment from manufacturing in India had hardly changed in the past 30 years. In contrast, the share of output from aggregate services rose dramatically over the last 30 years, from about 35% to more than 50% of GDP.

Foreign investment into Non-Banking Finance Companies is allowed to the extent of 100% under the automatic route in only the following activities, viz. Merchant Banking, Under Writing, Portfolio Management Services, Investment Advisory Services, Financial Consultancy, Stock Broking, Asset Management, Venture Capital, Custodian Services, Factoring, Credit Rating Agencies, Leasing & Finance, Housing Finance, Forex Broking, Credit Card Business, Money Changing Business, Micro Credit and Rural Credit.

In addition, the NBFC will have to comply with the guidelines of the relevant regulator/s, as may be applicable. For instance, those companies, which are Core Investment Companies (CICs), will have to additionally follow RBI’s Regulatory Framework for CICs

Furthermore, such FDI in an NBFC would also be subject to the following minimum capitalisation norms[2]-

• US $0.5 million for foreign capital up to 51% to be brought upfront;
• US $ 5 million for foreign capital more than 51% and up to 75% to be brought upfront;
• US $ 50 million for foreign capital more than 75% out of which US$ 7.5 million to be brought up front and the balance in 24 months;
• NBFCs (i) having foreign investment more than 75% and up to 100%, and (ii) with a minimum capitalisation of US$ 50 million, can set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital. The minimum capitalization condition as mandated by para 3.10.4.1 of DIPP Circular 1 of 2012 dated April 10, 2012, on Consolidated FDI Policy, therefore, shall not apply to downstream subsidiaries;
• Joint Venture operating NBFCs that have 75% or less than 75% foreign investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capitalisation norm mentioned in (a), (b) and (c) above and (f) below;
• Non- Fund based activities [3]: US$ 0.5 million to be brought upfront for all permitted non-fund based NBFCs irrespective of the level of foreign investment subject to the condition that it would not be permissible for such a company to set up any subsidiary for any other activity, nor it can participate in any equity of an NBFC holding/operating company.
• This will be subject to compliance with the guidelines of RBI.

It is to be noted that wherever there is a requirement of minimum capitalization, it shall include share premium received along with the face value of the share, only when it is received by the company upon issue of the shares to the non-resident investor. Amount paid by the transferee during post-issue transfer of shares beyond the issue price of the share, cannot be taken into account while calculating minimum capitalization requirement.

Foreign Direct Investment (FDI) in India is subject to certain Rules and Regulations and is subject to predefined limits ('Limits') in various sectors which range from 20% to 100%. There are also some sectors in which FDI is prohibited. The FDI Limits are reviewed by the Government from time to time and as and when the need is felt and FDI is allowed in new sectors where the limits of investment in the existing sectors are modified accordingly.

Some of the important changes made in the Existing FDI Limits are provided below:

FDI Limit in Telecom Sector is increased from 74 per cent to 100 percent, out of which up to 49 per cent will be allowed under automatic route and the remaining through Foreign Investment Promotion Board (FIPB) approval. A similar dispensation would be allowed for asset reconstruction companies and tea plantations.

FDI in 4 sectors i.e. gas refineries, commodity exchanges, power trading and stock exchanges have been allowed via the automatic route. In case of PSU oil refineries, commodity exchanges, power exchanges, stock exchanges and clearing corporations, FDI will be allowed up to 49 per cent under automatic route as against current routing of the investment through FIPB.

FDI in single brand retail is to be allowed up to 49 percent under the automatic route and beyond that shall be through FIPB.

In credit information firms, 74 per cent FDI under automatic route will be allowed.

In respect of courier services, FDI of up to 100 per cent will be allowed under automatic route. Earlier, similar amount of investment was allowed through FIPB route

FDI cap in defences sector remained unchanged at 26%, however higher limits of foreign investment in state-of-the-art manufacturing would be considered by the Cabinet Committee on Security (CCS). Technically, the decision leaves it open for CCS to even allow 100% foreign investment in what the defence ministry will define as "state-of-the-art" segments with safeguards built in to ensure that the technology and equipment are not shared with other countries.

In the contentious insurance sector, it was decided to raise the sectoral FDI cap from 26 per cent to 49 per cent under automatic route under which companies investing do not require prior government approval. A Bill to raise FDI cap in this sector is pending in the Rajya Sabha. Some of the sectors in which FDI limits were expected to be increased but did not were, civil aviation, airport, media, multi-brand retail and brownfield (existing firms) pharmaceuticals.