Industry of the Month The Real Estate Industry

eBizWire
Vol. I Issue. XI, January 2013
Insight

Biz Policy Updates The Indian Real Estate Industry

2 4 8

Business Idea of the Month Upcoming Business Summit Contact us 9 10

For more info on Business setup visit www.startbizindia.in

Page |1

For Business setup queries email at nitesh@indiacp.comor call at 011 40622249

Biz Policy Updates

RBI reviews the limits for Foreign Investment by SEBI registered FIIs in Government Securities and Corporate Debt The SEBI registered FIIs are allowed to purchase on repatriation basis, Government securities and Non Convertible Bonds issued by an Indian Company subject to the related terms and conditions and limits prescribed th by RBI and SEBI from time to time. RBI, through a notification dated 24 January, 2013 has modified the present limits: Investment by FIIs
TYPE INVESTMENT OF CURRENT LIMITS MODIFICATIONS

Legal Headlines
RBI reviews the limits for Foreign Investment by SEBI registered FIIs in Government Securities and Corporate Debt

Government Securities Corporate Debt

USD 20 Billion USD 45 Billion Sublimit of USD 25 Billion for bonds of infrastructure companies (USD 3 Billion for QFIs subject to a residual maturity of 5 years)

USD 50 Billion Sublimit of USD 25 Billion for bonds of infrastructure Companies (Residual maturity for investment by QFIs modified to 3 years). Remaining USD 25 Billion for non infrastructure bonds

Investment by FIIs and long term investors like Sovereign Wealth Funds, multilateral Agencies, Endowment Funds, Insurance funds, Pension Funds, Foreign Central Banks to be registered with SEBI:
TYPE OF INVESTMENT

CURRENT LIMITS

MODIFICATIONS

Government Securities

Overall limit of USD 20 Billion With residual maturity of 3 years for first purchase of up to USD 10 Billion

Overall limit increased to USD 25 Billion with the sub-limit being increased to USD 15 Billion. The condition for residual maturity has been dispensed with. Investment allowed within the prescribed USD 25 Billion limit for non infrastructure debt

Non Infrastructure Debt

For more info on Business setup visit www.startbizindia.in

Page |2

For Business setup queries email at nitesh@indiacp.comor call at 011 40622249

Biz Policy Updates

Infrastructure Debt USD 22 Billion with lock-in period of one year. (Sublimit of USD 10 Billion for Non Resident investment NCDs/ Bonds in infrastructure sector) Included in USD 25 Billion limit for FII investment in bonds of infrastructure companies. Requirement for lock in period dispensed with. The residual maturity period for entire USD 22 Billion uniformly kept at 15 months.

Legal Headlines

ECB policy for Infrastructure Finance Companies Reviewed Till now, the Infrastructure Finance Companies (a category of NBFCs) complying with prescribed norms were allowed to avail ECBs (including outstanding ECBs) up to 50% of their owned funds under the automatic route. ECBs above 50% of their owned funds were being considered under the approval route. The end-use for ECBs availed by such companies should be on-lending to the infrastructure sector. Such Companies were also required to hedge their currency risk in full. Now, the RBI, through a notification dated 07 January, has reviewed these limits and the ECB limit for IFCs under the automatic route has been raised from 50% of their owned funds to 75% of their owned funds. Beyond this limit, RBIs approval shall be required. Also, the hedging requirement has been reduced from 100% of their exposure to 75% of their exposure. External Commercial Borrowings for low cost affordable housing projects RBI, through a notification dated 17 December, 2012, has made low cost affordable housing projects a permissible end use for ECBs under the approval route. ECBs can now be availed by developers, builders, Housing Finance Companies and the National Housing. The aggregate limit for financial year 2012-13 is fixed at 1 Billion USD worth of ECBs for this purpose. For this purpose, a low cost affordable housing project would mean a project in which at least 60 percent of the permissible Floor Space Index would be for units having maximum carpet area up to 60 square meters. Slum rehabilitation projects shall also be eligible subject to certain conditions.
th th

ECB policy for Infrastructure Finance Companies Reviewed

External Commercial Borrowings for low cost affordable housing projects

For more info on Business setup visit www.startbizindia.in

Page |3

For Business setup queries email at nitesh@indiacp.comor call at 011 40622249

Real Estate Industry in India Its a fact now that even when the world economy is in doldrums, India
though itself a little weak on the growth path, is one of the fastest growing economies today. With a lot of foreign players coming into the Country and the competitive indigenous enterprises, the resources of the Country are being tapped well and cross industry growth is taking place. A perfect example of such industry which is growing hand in hand with all other sectors is the Real Estate industry. Developments in sectors such as hospitality, retail, entertainment and services like education and health care influence developments in the Real Estate sector too.As per Indian Brand Equity Foundation (IBEF), the real estate in India contributes about 5% to Indias GDP. Not only this, the real estate sector is touted to be the second largest employer in the economy after agriculture. The sector has ample backward and forward linkages with sectors such as housing & construction and hence connections with various ancillary industries like cement and other building material. What is Real Estate? Real Estate is the land, including the air above it and the earth below it including any buildings or structures that may form a part. Real Estate includes the activities of purchase, sale and development of land and residential & non residential buildings. The entities involved in the real estate business are: landlords, developers, builders, real estate agents, tenants, buyers, etc. How is the market categorized? The Real Estate Industry is broadly segmented into 4 categories: Commercial, Residential, Retail and Hospitality Real Estate. The demand for commercial property is on the rise. Thanks to the countrys economic growth. Because of the growth, the urban segment in the population is slowly and steadily expanding. The urban population is expected to cross 590 million by 2030 (Source: www.ibef.org).From here itself, the demand forresidential propertyarises, i.e. because of the increasing household income and the consequent urbanization. Now urbanization would bring clusters of such population close which is in a phase wherein many of its luxuries are becoming necessities. To cater to this and its thirst for more choices, there have to be larger stores and hence, the mall culture also blooms which eventually leads to increased demand for retail real estate as well. Rising household incomes also increases scope for hospitality real estate aspeople start seeking more balance between their work and

THE REAL ESTATE INDUSTRY

Commercial Real Estate Housing Real Estate Retail Real Estate Hospitality Real Estate

For more info on Business setup visit www.startbizindia.in

Page |4

For Business setup queries email at nitesh@indiacp.comor call at 011 40622249

Real Estate Industry in India

leisure. One wouldnt be wrong in saying that the economic growth of the Country can boost the demand for real estate in all the segments. How is the demand trending?

DEMAND IN THE REAL ESTATE SECTOR

COMMERCIAL PROPERTY Demand mainly arising from metro cities which act as the Countrys communication system to interact with the foreign nations. Developers now focus more on lease & maintenance contracts than sales.

HOUSING PROPERTY Demand for such property to be on the rise owing to shortage in both rural & urban areas alike. The demand is expected to rise by 19% every year (www.info.shine.com)
The housing segment is the biggest contributor out of all segments (www.info.shine.com)

RETAIL PROPERTY The growth on retail front more or less dependent on collaborations with foreign retail brands hence a slow and steady rise can be expected

HOSPITALITY PROPERTY Majorly constitutes hotels & convention centres and majorly focussed in Delhi and Mumbai.

Though a lot of focus is placed on metro cities by the real estate developers, they are these days flocking to smaller cities because of the growth prospects offered and the comparative price stability vis--vis bigger cities. As per a CRISIL report, the residential property has generated about 4 billion USD in 10 cities beyond the top 10 cities of the Country. Real Estate: A highly regulated sector: The Real Estate sector happens to be one of the most regulated sectors. As per a report by the Ministry of Corporate Affairs Committee on National

For more info on Business setup visit www.startbizindia.in

Page |5

For Business setup queries email at nitesh@indiacp.comor call at 011 40622249

Real Estate Industry in India

Competition Policy, every real estate project prior to launch has to seek almost 52 odd approvals, a number which could vary from state to state. Some of the many laws that affect a transaction taking place in the Real Estate sector can be seen below:

GENERAL LAWS Law 1. The transfer of Property Purpose

Act 1882
2. Indian

To register all exchanges of immovable property whether by way of sale, mortgage, gift, lease or any other means.

Contract

1872

Act, To govern any contract that is entered into by an individual, partners of a firm, a corporate body, a trust, a sole corporate, and manager of a Hindu Undivided Family or a foreigner.

3. The Indian Registration To conserve evidence and title, thereby Act, 1908 preventing fraud. The Act details which instruments are to be compulsorily registered under the act and under what formalities. 4. The Specific Relief Act, To enforce an individual civil right of a 1963 person who is dispossessed of an immovable property without his consent 5. Land 1984 Acquisition Act, To facilitate the governments acquisition of privately held land for public purposes Local Authorities &societies under the Cooperative Societies Act can acquire the land for developmental activities through the Govt. under this act.

As per a report by MCAs Committee on National Competition Policy, Every real estate project requires some 52 odd approvals

6. The Indian Evidence Act, To provide clarity in case the title of any 1872 person as an owner of a piece of immovable property is questioned.
STATE LAWS

1. Rent Control Act 2. Stamp Duty Act

To ensure fair rent to the landlords and protection of tenants against eviction The collect stamp duty on all documents which are registered. The Stamp duty varies with the state To levy municipal taxes that can be utilized for the upkeep of basic civic services in the city.

3. Property Tax

For more info on Business setup visit www.startbizindia.in

Page |6

For Business setup queries email at nitesh@indiacp.comor call at 011 40622249

Real Estate Industry in India

Apart from some other land related laws, the entities operating in the real estate sector need to be compliant with various environment laws like the Environment Protection Act and the relevant laws for prevention and control of air and water pollution. Depending on the kind of business, the entity might even have to comply with the various construction and labor laws. The Real Estate Industry providing a myriad of investment opportunities In the recent times when the Country has been struggling with the ever weakening Indian Rupee against the USD, NRIs have found a reason to rejoice especially in Real Estate. Before the year 2005, only NRIs and Persons of Indian Origin were allowed to invest in the housing and real estate sectors and other Foreign Investors were allowed to invest only in development of integrated townships and settlements by way of wholly owned subsidiaries or Joint Ventures. The avenues for the foreign investors fully opened in 2005. Now FDI up to 100% under automatic route is allowed in Housing, Townships, Construction Development and Built up infrastructure. However the investor has to follow some minimum area and minimum capitalization requirements. Moreover the investment is not allowed to be repatriated by the investor before 3 years from the completion of capitalization, an exit is available with the approval of Foreign Investment Promotion Board (FIPB). The FDI policy however expressly prohibits FDI in construction of farm houses or in real estate business (i.e. trading in real estate or Transferable Development Rights). Government Initiatives Through the Budget 2012-13, the Government aimed at increasing the investment in infrastructure because the real estate sector is seen as a major industry contributing to the overall economic growth of the country. Governments efforts were successful to a great extent, especially in th increasing investment by more Public Private Partnership. The 12 5 year plan of the Government focuses on increasing infrastructure so the scope is open for construction companies as far as the Governmental support is concerned. Given the increasing affluence of the Indian families, consequential rise in urbanization and shift of focus from renting to owning a property, the future of the Real Estate Sector looks bright.

Indian Real Estate sector has earned FDI worth more than 20 Billion USD in past 12 years and received PE worth 1700 Million USD during 2011.www.ibef.org

Some major Foreign Investors in the Indian Real Estate Sector: Emmar Properties, Dubai Laing ORourke, UK Morgan Stanley Real Estate Royal Indian Raj international Corporation, Vancouver

For more info on Business setup visit www.startbizindia.in

Page |7

For Business setup queries email at nitesh@indiacp.comor call at 011 40622249

Business Idea of the Month

A CONSTRUCTION COMPANY
Considering the growth being witnessed in the real estate sector today, its undoubted that the demand for property is on the rise, whether commercial, residential or retail. Amidst all this, it would make sense if one started a construction company given the scope of opportunities that would arise on doing that. Yes, real estate being a highly regulated sector would mean a large number of approvals from various authorities, the pay backs in this business are very promising. For a construction company, both pre and post incorporation approvals become important. Various laws that would apply to your company can be categorized as follows LAND RELATED LAWS 1. The Transfer of property Act, 1882 (Transfer of right & interest in immovable property) 2. The Land Acquisition Act, 1894 3. The Delhi Reforms Act and The Delhi Land Revenue Act,1954 ENVIRONMENTAL LAWS 1. The Environment Protection Act, 1986 (For environment clearance) 2. The Water (Prevention & Control of Pollution) Act, 1974 3. The Air (Prevention & Control of Pollution) Act, 1981 CONSTRUCTION LAWS (shall apply on project to project basis and vary with the state) 1. The Delhi Development Act, 1957 (For master plan, zonal plan & conversion) 2. The Delhi Municipal Corporation act, 1957 (For approval of building Plan) 3. The Delhi Jal Board Act, 1998 (For water connection) 4. The Delhi Fire Prevention & Fire Safety Act, 1986 5. The Aircraft Act, 1934 (For height clearance) 6. The Electricity Act, 2003 (For power connection) LABOUR LAWS 1. The Building and other construction workers (regulation of employment and conditions of service Act, 1996 2. The Building and other construction workers welfare Cess Act, 1996 3. The Payment of Wages Act, 1936 4. The Minimum Wages Act, 1948 5. The Employees State Insurance Act, 1948 For more info on Business setup visit www.startbizindia.in

Page |8

For Business setup queries email at nitesh@indiacp.comor call at 011 40622249

Upcoming Business Summit

Logistics, 2013 A 3 day exhibition dedicated to logistics industry including a 2 day Logistics Summit, this event, a CII initiative aims to bring together more than 10000 exhibitors from the logistics industry and more than 400 delegates to deliberate on various subjects concerning the logistics industry. It hopes to enable the participants understand the latest trends in this sector and engage in structured B2B meetings. Date and Venue: 15 -17 February, 2013, Pragati Maidan, New Delhi
th th

E-sparks- 2013

Logistics, 2013
E-Sparks intends to be a platform for various e-commerce startups in India where they can showcase themselves. Not only this, various problems that are being faced in the industry will be discussed by the participants. Date and Venue: 16 February, 2013, Bangalore
th

E-sparks, 2013 Public Private Partnership, enhancing capacity for growth

Public Private Partnership- Enhancing Capacity for Growth

This seminar to be organized by ASSOCHAM aims at bringing together Senior Government officials, prominent industry representatives, banks and entrepreneurs to discuss various investment opportunities, possibilities of Public-Private Partnership and execution measures of such projects in the field of infrastructure development. Date and Venue: 21 February, 2013, Hotel Capitol Hill, Ranchi
st

For more info on Business setup visit www.startbizindia.in

Page |9

For Business setup queries email at nitesh@indiacp.comor call at 011 40622249

Biz India News

Nitesh Latwal E: nitesh@indiacp.com D: +91.11.40622249 M: +91 9873521481

Visit us at

A Venture of

D- 38, 1 Floor, South Extension, Part I New Delhi 110049 Ritika Kharbanda E: ritika@indiacp.com D: +91.11.40622246 M: +91 9899180593 T: +91.11.40622200 F: +91.11.40622201 E: info@startbizindia.com

st

Disclaimer: This paper is a copyright of Corporate Professionals (India) Private Limited. The entire content of this paper have been developed for the new startups. The author and the Company expressly disclaim all and any liability to any person who has read this paper, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this paper.

For more info on Business setup visit www.startbizindia.in

P a g e | 10

For Business setup queries email at nitesh@indiacp.comor call at 011 40622249