Decoding requirements for construction-development

Real estate is one of the sectors which has always been watched closely by regulators and private equity investors. Foreign direct investment (FDI) is not permitted in any entity which is engaged or proposes to engage in real estate business. However, FDI up to 100% is allowed under the automatic route in construction-development projects. Recently, the Department of Industrial Policy and Promotion revised the regulations with respect to FDI in this sector by amending the FDI policy.

Though a clear definition of “construction-development projects” has not been provided, the revised policy illustrates that the following will be included as construction-development projects: (i) development of townships; and (ii) construction of residential/commercial premises, roads or bridges, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional infrastructure and townships.

Though the entry route is automatic, several conditions must be fulfilled. The key conditions can be broadly classified as: (i) minimum area requirement; (ii) minimum capitalization; and (iii) minimum lock-in. Apart from these, there are a few other conditions, such as conforming to laws (including local laws) relating to construction and development activities, and investee companies being allowed to sell only developed plots.

Aakash Choubey is a partner and Abhishek Sinha is a principal associate at Khaitan & Co. The views of the authors are personal, and should not be considered as those of the firm.