FOREIGN INVESTMENT AND REAL ESTATE Foreign investment in real estate is regulated in most developing countries for historical reasons. In India, the foreign investment in real estate is regulated under the aegis of Foreign Exchange Management Act, 1999 (FEMA) where the Central Government and Reserve Bank of India are the regulating authorities. We will now skim through these provisions in the following paragraphs. Foreign Direct Investment (FDI) in development of technology parks, SEZs, infratructure companies etc. was permitted for number of years. In the year 2005, the Government of India took a bold step and further liberalized FDI in this sector. In terms of press note 2 of 2005 series, FDI is allowed upto 100% under the automatic route 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), subject to the following guidelines: 1) Minimum area to be developed under each project would be as under:
2) The investment would further be subject to the following conditions:
Apart from FDI in real estate, following points are worthy of mentining. 1) A person resident outside India, who has been permitted by Reserve Bank of India to establish a branch, or office, or place of business in India ( excluding a Liaison Office), has general permission to acquire immovable property in India , which is necessary for, or incidental to, the activity. 2) There are some special provisions applicable only for Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs). They are permitted to acquire any immovable property in India other than agricultural/ plantation /farm house. They may also transfer any immovable property (other than agricultural or plantation property or farm house) to another NRI or PIO. 3) The use of foreign exchange earned by any Indian Company by the issue of American Depository Receipts and Global Depository Receipts in real estate is expressly banned. CAPITAL MARKET AND REAL ESTATE Flow of money from capital market to the real estate sector is regulated by Securities and Exchange Board of India under the aegis of Securities and Exchange Board of India Act, 1992 made by Government of India. In a nutshell, while real estate companies can freely raise monies from the capital market and list the securities in the stock exchanges, SEBI has imposed certain limitations on the investment of funds by Mutual Funds (MF), Venture Capital Funds (VCF), Foreign Venture Capital Investors (FVCI) and Foreign Institutional Investors (FII) in the real estate companies. Not only direct investment, even portfolio purchase of shares in the secondary market have come under the glare of SEBI. Recently, SEBI has made guidelines on real estate mutual funds (REMFs) which allows REMFs to target real estate companies for investments. The way the policy is evolving in India, initially REMFs will be allowed to invest in securities only. The next step will be to set up real estate investment trusts (REITs), which will be allowed to invest directly in real estate assets. This graduated approach is being followed to allow time for the market to mature, and so that public money is not put to undue risk. At present REMFs have become operational while REIts are yet to see the light of the day. GENERAL REAL ESTATE LAWS Investing in real estate in India require compliance with maze of laws - some of them made by Central Government, some by respective State Government and some by Local authorities. Many of these laws are more than 100 years old and some are irrelevant in the present day context. The Central laws governing real estate include: Indian Transfer of Property Act The Transfer of Property Act governs the transfer of property by various means such as Sale, Mortgage, Gift and Exchanges of immovable property. This law is more of an umbrella Act prescribing the obligation and protecting the rights of the transferor and transferee. Most of these transactions must be in writing, They also require registration by virtue of Registration Act. Indian Urban Land (Ceiling And Regulation) Act This legislation fixed a ceiling on the vacant urban land that a person in urban agglomerations can acquire and hold. This ceiling limit ranges from 500-2,000 square meters. Excess vacant land is either to be surrendered to the Competent Authority appointed under the Act for a small compensation, or to be developed by its holder only for specified purposes. This legislation was repealed by the Central government in the year 1999. However, this Repeal Act has not been adopted by all the State governments. The State Governments of Haryana, Punjab, Uttar Pradesh, Gujarat, Karnataka, Madhya Pradesh, Rajasthan and Union Territorie have adopted this law and consequently large parcels of land have been released in these markets. Andhra Pradesh, Assam, Bihar, Maharashtra, Orissa and West Bengal have not adopted the Repeal Act so far. Indian Registration Act The purpose of this Act is the conservation of evidence, assurances, title, publication of documents and prevention of fraud. It details the formalities for registering an instrument. Instruments which require mandatory registration include the following:
Indian Stamp Act Stamp duty is required to be paid on all documents which are registered and the rate varies from state to state. While some documents are required to be stamped in accordance with the Indian Stamp Act enacted by the Central Government, most of the documents are required to be stamped in accordance with the stamp laws in force in the respective States. The rates varies from State to State and from transaction to transaction starting from Rs. 200 to 14.5% of the transaction value. Indian Contract Act, Specific Relief Act, Hindu Law, Mohammedan Law, Christian Law etc. Though these are generic law and not specifically made for real estate industry, these Acts assumes much importance in real estate transaction. State Laws In addition to these Central laws, there are number of laws passed by the State Governments regulating the real estate transaction in the respective States. For example, in Karnataka there are laws pertaining to the following:
If you are interested in knowing more about laws in Karnataka and particularly those of Bangalore, these are the few websites that you should check out: http://www.bdabangalore.org/ http://www.bmrda.kar.nic.in/ http://www.bmponline.org/ http://www.biaapa.in/ http://bangaloreurban.nic.in/deputy_commissioner.htm http://www.karigr.org/ http://www.revdept.kar.nic.in/ http://bhoomi.karnataka.gov.in/ http://rdpr.kar.nic.in/Schemes_frames.htm For detailed discussions on selected real estate topics, please log on to our 'Publication' section. |
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