If all you want to do is buy an apartment for yourself, its straight forward. But its different if you want to build an apartment complex or township or SEZ (special economic zone) with FDI (foreign direct investment) or ECB (external commercial borrowing).

Please refer this post: RBI Guidelines for FDI and ECB in Indian Real Estate

Investing in real estate in India requires compliance with various laws, some 100 years old and some new. In addition to Central Govt laws, there are state laws governing real estate transactions and investment.

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. Sales, mortgages (other than by way of deposit of title deeds) and exchanges of immovable property are required to be registered by virtue of the Transfer of Property Act. Therefore, all the above documents must be in writing and registered.

Indian Registration Act, 1908

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:

• (a) Instruments of gift of immovable property;
• (b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, to or in immovable property;
• (c) non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of instruments in (2) above.
• (d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent

Sales, mortgages (other than by way of deposit of title deeds) and exchanges of immovable property are required to be registered by virtue of the Transfer of Property Act. So all the above documents have to be in writing.

Section 17 of the Act provides for optional registration. An unregistered document will not affect the property comprised in it, nor be received as evidence of any transaction affecting such property (except as evidence of a contract in a suit for specific performance or as evidence of part-performance under the Transfer of Property Act or as collateral), unless it has been registered.

Thus the doctrine of part performance dealt with under Section 53 A of the Transfer of Property Act and the provision of Section 49 of the Registration Act (which provide that an unregistered document cannot be admissible as evidence in a court of law except as secondary evidence under the Indian Evidence Act) together protect the buyer in possession of an unregistered sale deed and cannot be dispossessed. The net effect has been that a large number of property transactions have been accomplished without proper registration.

Instruments such as Agreement to Sell, General Power of Attorney and Will have been indiscriminately used to effect change of ownership. Therefore, investors in real estate have to be careful in their due diligence.

Therfore, establishing “Clear Title” on your desired Indian Real Estate is more complex and time-consuming than it is in America or Europe. Please factor this in your due-diligence.

Reference: http://www.madaan.com/realestate.html

Answer: Thanks for asking your question. Please see the following posts for relevant inputs:

RBI Guidelines for FDI and ECB in Indian Real Estate

How can USA residents invest in India Real Estate through ETFs/ADRs?

So, can NRI’s invest through ETFs or ADRs? The simple answer is Yes in most cases. You should double check that your specific “residential projects” don’t have any regulation constraint from either Central Govt (RBI) or State Govt (I believe some state govts have added clauses to Central govt rules). Since you are already operating in India, you would have a good understanding on these aspects.

One more point from our experience is that if you are looking to attract FDI from NRIs for Real Estate Projects in the form of ETFs/ADRs, then you should tie-up with a company that has existing relationships with NRI investors, so that your offering gains more credibility.

You can contact us if you want help in connect with such companies. Feel free to ask any other question.

Thanks,
Shankar on behalf of India-Real-Estate.org

Answer: I think when you say FDI in debt form, you meant to say: External Commercial Borrowing (ECB), because FDI (foreign direct investment) stands for investments rather than debt.

The finance ministry allowed External Commercial Borrowing (ECB) in Indian real estate projects (in 2005) involving integrated townships of 25 acres or 50,000 square metres of more. However, the RBI’s position has to be checked on a project by project basis. Its not right to give a general answer on this website - so that other readers don’t take wrong conclusions.

As per our understanding, the RBI allows ECB in real estate projects involving integrated townships of 100 acres or more.

As you maybe aware, in real estate projects, significant capital is required upfront for land acquisition, which is classified as working capital. But end-use restrictions like not allowing ECB money to be used for working capital mean that Foreign funds (as debt) can’t be applied everywhere in Indian Real Estate.

RBI guidelines are often related to type and scale of the project. So if you are planning a large infusion of debt capital then please check RBI guidelines at a micro level.  Our team of legal real-estate experts could offer detailed help on specific cases. Feel free to contact us or ask any other questions.

According to shareholding data available on BSE, the domestic financial institutions and banks have increased their inevstment in Unitech Ltd by over 1.5 percentage, while Foreign institutional investors (FIIs) have reduced their stake.

In the case of Parsvnath, there were marginal changes in the institutional shareholding (mutual funds/UTI and financial institutions and banks) within the non-promoter category, even as the ‘individual’ holding rose by just less than a percentage point.

“The FII stake in Parsvnath had almost doubled between June 2007 and December 2007, but came down subsequently, in line with market trend,” a market observer said.

In the case of Unitech, the stake held by various mutual funds and UTI stood at 0.51 per cent on June 30, 2008 — a bit higher than 0.25 per cent in 2007.

According to market sources, while FIIs have trimmed their holding in Unitech, the shares sold by them may have been picked up by private Indian insurance firms.

So there is capital in the market that is willing to pick-up whatver real estate equity becomes available. Whether the current Indian Real Estate Stock P/E is good for buying now, is the big question.

Obviously, different people are seeing things differently!

• Cost of real estate has risen considerably over the last 10 years. In fact, Investment in a property has turned into a productive option for majority of people. In most cases, the prices have only gone up.
• We’ve got property developer billionaires in this cash rich sector. The driving force behind this Indian real estate boom is the steady extension of ITES, BPO, KPO, and Outsourcing services and the subsequent development of the middle class status.
• Both commercial and residential growth are running at a marathon pace.
• The most favoured cities for investors are Bombay, Bangalore, Hyderabad, Madras, Gurgaon, New Delhi, Pune, Chandigarh, Calcutta and Jaipur.

Reasons for Growth

One of the main reasons for this boom is that in the year 2006, Indian government give consent to 100 percent foreign direct investment. This has enabled foreign residents maximize their profits through bidding for Indian real estate along with their local associates.

The growth may be also attributed to several factors such as economic reform and liberalization, increased globalization, increase in business opportunities, heightened equity market activity, increasing demand, enhanced transparency, legitimized funding and favourable demographics.

Real Estate Venture capital funds have propelled Indian Real Estate industry to become one of the highest investment generating avenues. Also the fact that India’s seven Real Estate powers like DLF and Unitech are their in the Forbes list of 54 Indian billionaires crystallizes the sector’s strength. Industry was able to attract significant interest from domestic and foreign investors keen to be a part of the real estate growth

The Future Trends

The real estate industry is estimated to reach $60 billion by 2010 with a growth rate of 30 per cent. The industry entered the Dalal Street in a big way and floated 12 public issues in the year, making it a leading sector in terms of fund raising. Currently, private property developers are largely focusing on constructing housing units for middle class and poor. Rising disposable income and the trend towards nuclear families are the significant factors pushing the demand for residential properties in the country.

Many eminent foreign builders like Dubai-based Emmar Properties have shown keen interest in Indian real estate and have joined hands with Indian constructors for investment. Other major foreign players in Indian realty market includes Japan’s Kikken Sekkel, UK’s High Point Rendel , Cesma International and Lee Kim Tah Holdings from Singapore, etc. It is expected that all these foreign investors will exercise latest technology, management skills and regulation policy to make it big in Indian real estate market

Another factor that plays a critical role in the current trend in the Indian Real Estate industry is the development of physical and social infrastructure. Residential, commercial offices, retail and hotels have their own place in the market. The presence of real estate majors from within India as well as abroad have ensured constant supply of capital which is absolutely necessary for the large scale of development that has been undertaken, especially in the infrastructure expansion of roads, airports, ports and SE’s that require large funding India’s biggest realty developer, DLF continued its supremacy over others. The firm launched the a mega IPO of over Rs 9,000crore, followed by HDIL’s Rs 1,700 crore and Puravankara Projects’ Rs 850 crore.

About the Author: Rahul Boss is working as an architect in India has developed trustworthy commercial apartments.

The aim of India Real Estate.org is to help Indian real estate investors across the globe, in learning about good opportunities, and reliable builders/developers. Indian companies are more resilient than ever to a global downturn these days, with lower borrowing costs and healthier debt-equity ratios.

Now coming to the point….Mumbai real estate is among the most expensive in the world - more than that of Tokyo or New York - and there is no shortage of those who can afford to pay. The city also attracts millions of low wage workers every year, and there are ever-expanding slums that house more than half of the city’s population.

Mumbai real estate is a multi-billion dollar market on a daily/weekly trading basis. In addition to sea view penthouses on Marine Drive, Worli, Juhu etc, there are luxurious duplexes across the city….with many new residential projects to fully furnished offices and ‘built-to-suit’ commercial spaces including upscale multi-family apartment communities.

Some analysts say that Mumbai real estate has started seeing a slide in property prices; others may witness the decline gradually. Some experts believe that over the next three to six months, the liquidity crunch will have its full impact on property prices.

Market estimates say many people who had purchased property for investment purposes had a big exposure to the equity market, which is currently 25% down from its high levels in Dec 2007. This means, the turmoil in the stock market may lead to drying up of available free cash, leading to default in paying installments.

That said, Mumbai real estate market has pockets of attractive opportunities even at high P/E levels. Investors have many good reasons to invest in Mumbai property market. Mumbai is the India’s business capital, and the most populous city of India.

Investors and HNIs have been investing in various pre-leased properties having insurance, banking, IT/ ITES, residential and retail sector occupants. Investors should be cautious about any and all stock recommendations and should consider the source of any advice on stock selection. Various factors, including personal or corporate ownership, may influence or factor into an expert’s stock analysis or opinion.

Another interesting trend is the remodeling of commercial spaces to retail spaces. The property values for commercial spaces are touching skies and developers are finding it difficult to sell their commercial/office property. Hence, many of them are positioning their property as retail space in a hope to find more takers.

Investors are targeting Navi Mumbai because the prices here are on the increase. It is a newly developed area just across the harbor.

Unitech, India’s second largest developer, was involved in two such land deals. It snapped up 1,750 acres in Vizag for Rs 3,350 crore last year and won 340 acres in Noida for Rs 1,582 crore in 2006, while India’s biggest real estate developer DLF clinched a 38-acre land deal in the national capital for Rs 1,675 crore. Unitech is expected to close FY08 with revenues of Rs 4,350 crore and a net profit of Rs 1,650 crore.

Developers are constructing properties with facilities and amenities at par with international standards. Yearly appreciation on commercial real estate market across the Indian metro ranges from 9 to 11%. So there are many opportunities there at all levels: residential and commercial real estate.

About the Author: Shankar AVSB of 7Avenues Private Equity, who is an investor in Indian Real Estate. He believes that Mumbai real estate presents great opportunities in both bullish and bearish market sentiments. He is based in London.

According to city-based property brokers, most of the companies look for A Grade quality office space in Chennai and expect robust infrastructure around their office.

The real estate developers operating in Chennai commercial real estate space observe that Old Mahabalipuram and Guindy are among the most preferred commercial areas for IT/ITES companies. Most of the companies are coming to these regions and the real estate values are likely to take a ride over these trends.

• As per studies, rental values of commercial properties viz. offices and shops located at CBD region is reported to have the highest rental values at around Rs 45-55 per sq. ft. These rental values decreases off CBD region of about Rs 35-40 per sq. ft.
• At present, commercial rental value in Chennai varies from Rs 30-55 per sq. ft, which is about 5-15 per cent higher as compared to last year.

Residential property

Chennai properties around the south-west part of the city are likely to enjoy a northward rally in the next couple of years. The business opportunities created by the modernization of airport would boost the property values in the areas around the facility.

• According to the property experts, the areas of Guindy and Vela Chery would be among the most-benefited.
• Besides, the property prices in Chennai’s Saidpet area are also likely to go up as the airport project would progress.

As far as investment opportunities in Chennai Real Estate are concerned, investors can delve for investing in properties around Inner Ring Road as it connects the central city localities like Kodambakkam and Mambalam with the airport, and is likely to reap rich dividends in the near future.

George Gonigal provides you the best and latest information on Chennai Real Estate Builders, if you want to Buy Apartments in Chennai. For more info, log on to magicbricks.

Article Source: http://EzineArticles.com/?expert=George_Gonigal

How can USA residents participate/invest in the India-Real-Estate through purchase of ETF’s or ADR’s?

Based on limited information available, and Without going into details, among ETFs, there are three that invest in Indian companies, two of which are Nasdaq listed (the BLDRS Emerging Market 50 ADR Index Fund and the BLDRS Asia 50 ADR Index Fund). The other ETF is listed on the Amex and is linked to the iShares MSCI Emerging Markets Index. Part of this might be in real estate. Unfortunately there are no India real estate companies listed in American markets. But there are a few like BSEL, Indiabulls real estate listed in Luxembourg markets.

On a positive side, there might be a few more companies that will be coming up with ADR’s but for that keep looking at this site.

Hope that helped.
Best Wishes/ Yogesh

Got a question? Please Ask Us Here.

Indian real estate is witnessing a boom and the scenario keeps evolving with every passing day. Indian real estate is heating up big time no doubt. It is estimated that Indian real estate is presently growing at 30 % per annum and the property industry boasts of a wide range of products that includes property prices which would suit even the people of the low-income group. Indian real estate industry is expected to grow beyond $100 billion in the near future.

A key point to note is that the Indian real estate is mostly privately owned, and is a highly unregulated, unorganized market with huge potential.

Indian Real Estate is certainly zooming away in the wake of current scenario witnessing its being riding on high growth wave. Indian real estate is happening, and a number of non-real estate companies are entering the sector to leverage the opportunities. Indian real estate is a growing sector for both investors and people who are looking for a home. Indian real estate is making rapid strides oIn the back of country’s surging economy.

After a slow start, FDI in Indian real estate is poised for rapid investments of over USD 10 billion likely in the coming near future. The attraction of Indian real estate is now in no doubt after an international investor pledged to put millions of pounds into the Indian real estate sector. From consultants to financiers to developers and construction companies, Indian real estate is witnessing a sea change in terms of operations.

For Non-Resident Indians (NRIs) and Persons of Indian Origin (PIO), investment in Indian real estate is monetarily rewarding and emotionally gratifying, as it helps maintain bonds with their homeland.

Indian Real Estate Investments

Policy changes introduced by the Government in February 2005 allowed 100 per cent foreign investments in construction projects with fast-track approvals. But the real attraction for foreign investors is potential investment returns of 25 per cent and more in Indian projects that might be hard to come by in the US and in Western Europe today.

Kishore Gotety, ICICI Venture Funds’ director of investments, says the internal rate of return net of developer margins and fees could be between 25% and 28%. Vornado’s investments through this partnership are primarily in the booming market for information technology parks in cities like Bangalore, Hyderabad and Navi Mumbai.

Vornado’s president Michael Fascitelli declines to detail the company’s investments in India, but says that it plans to create a fund that will co-invest with its Indian partner. ” He adds that while his company has targeted China and India as the top destinations among emerging markets for real estate investments, India scores higher marks. “Vornado’s Fascitelli says he expects high returns from investments in India “because of the risks.

Various authors have published tables showing 30 to 100 percent gains in a year through real estate investments. What the Indian Real Estate investor needs to be doing is deliberately evaluating if he is making the right investments, not by getting carried away by glossy advertisements but getting relevant provisions endorsed in the buyers agreement.

If you intend to add real estate investment in your overall investment portfolio or looking for the most productive commercial property, residential property or any other form of investment property, now is indeed a great time.

We intend to showcase the developing India which is open to investments and offers world class environment for work, luxury, relocation and retirement. This has been one of the most crucial factors for India gaining its status as a highly favored investment destination through FDI and funds. Property investment doors open for NRIs The policies set out by the government regarding property investment and repatriation, has made opportunities of investments in India even more favorable.

Approximately 94% of the capital investment being made in property is in Mumbai, Delhi and Bangalore. From Singapore, Lee Kim Tah Holdings is putting down its investment of US$115 million in a 100-acre township, with commercial and social infrastructure adjoining, near Mumbai. Nevertheless, the high profile investments which have arrived would have been unheard of as little at 10 years ago.

Real estate experts believe the country will need an investment in the order of US$75 billion to US$90 billion to bridge the expected deficit in housing, with only about 25% of that total being expected from banks and other institutes, as well as central and state governments.

Real Estate Growth in India

Real estate maturity in India focuses on three primary areas: commercial, retail and residential. Commercial Real estate refers to Office space; IT, BPO, KPO space leasing continues to boom with 12 million sft leasing across India; with 6 million square feet in Bangalore, and 7 million square feet Mumbai.

Growth in commercial office space requirement is led by the burgeoning outsourcing and information technology (IT) industry. One is a $200-million project for residential and commercial development on 42 acres in Bangalore’s prime Whitefield suburb. Industry experts believe that Indian real estate has huge demand potential in almost every sector — especially commercial, residential and retail.

As an indication of global interest in Indian real estate, LaSalle Partners, a major commercial real estate firm with headquarters in Chicago, last month announced the opening of an office in New Delhi, India. In India, banks had never thought of funding a commercial or residential real estate property a decade or two ago.

Some relevant regulations

Acquisition by way of gift: An NRI or a PIO may acquire residential/commercial property by way of gift from a resident of India, an NRI or a PIO. However, a foreign national of non-Indian origin resident outside India cannot acquire residential/commercial property in India by way of gift.

Sale of immovable property: An NRI can sell residential/commercial property in India to a person resident in India, an NRI or a PIO. However, a PIO can sell residential/commercial property in India only to a resident of India.

Furthermore, the commercial real estate sector promises better results with the demand for office space in the top seven cities shooting up to 70million per square foot, within the next three years. Another factor pushing the average rentals in the commercial business district (CBD) areas is a sharp increase in value of rupee. The demand for commercial property is steadily on the rise, especially in the retail sector.

Conclusion

The Real Estate explosion in the Indian real estate is in large part due to the by the burgeoning outsourcing and IT and BPO industries, which are bringing large amounts of cash. The underlying reason for all these moves is that the Indian real estate is tremendously attractive, because of basic demographics and a supply shortage. Truly Indian real estate is having a dream run for last five years.

Though there is a sort of saturation in the Tier 1 cities but the good news for Indian real estate is that Tier II cities started growing with the IT Sector and the industrial sector investing in such places. Thus Indian real estate is poised for a boom, taking the rest of the economy with it.

The notion that Indian real estate is expensive is based more on the cost of undeveloped land, which is becoming a scarce commodity, than finished residential or office space, which is still available at reasonable prices in most places, except maybe places like Marine Drive in Mumbai or Connaught Place in Delhi. Indian Real Estate will remain bullish for the foreseeable future.

Please Note: we will update this article from time to time with newer facts. If you want to share any facts related to India real Estate, you are welcome to contact us through the Contact page. Thanks.

According to the Associated Chambers of Commerce and Industry of India (Assocham), the Indian realty sector is likely to see a growth rate of 40-45% in 2008. The organization expects that more than $ 10 billion worth of FDI is likely to flow in the sector by the end of the year. Also the organization believes that the rate of growth is likely to be stable for the next three years when it might go down a little. Also most of the FDI investment is still predicted in the tier 1 cities.

The key points to note from the report are:

1. The growth in Indian realty sector is here to stay for next few years.
2. Most of the growth will still happen in big cities. The tier 2 cities are getting increasingly prominent in press but it will still be a while before they compete with tier 1 Cities for the FDI investments.
3. FDI in the Indian real estate sector will continue to grow because it provides an attractive investment opportunity for foreign investors who have hardly anything cheerful/comparable in the real estate sector in western markets.

Foreign investors have multiple ways to invest in this growth story.

In the last year, companies from this sector floated 12 public issues which included the countries largest IPO of more than Rs 9000 crore by DLF. Also with real estate funds growing in increasing number, they provide attractive alternate investment avenue. Preferred avenue for large investors does seem to be the private equity deals though. Some of the deals are mentioned on Sify.com:

“DLF sold 49 per cent stake in its seven townships to Merrill Lynch and Brahma Investments to raise Rs 1,675 crore.
The private equity deals also happened at entity level. Wachovia Corp, one of the largest financial institutions in the US, picked up 15 per cent stake in Vipul for Rs 234 crore.”

Recently one of the largest real estate firms in Mumbai also entered into significant deal with group of foreign investors. “the Shapoorji Pallonji group has finally struck a $290 million deal — the largest so far in the real estate space — with a clutch of foreign investors. CVC International and the Government Investment Corporation (GIC) of Singapore, along with others, have picked up a 15% stake in a special purpose vehicle (SPV) floated by the group”. (Source: Economic Times)

The same report also quoted the attraction of SPV for foreign investors:

“Mumbai-based real estate analyst said foreign funds continue to pour money into India, especially in FDI-compliant projects, despite concerns voiced by RBI and the government over heavy inflow.”

As quoted by a source:

“The SPV is the most favored route for foreign investors. Since it is almost like a new company, it helps foreign investors avoid all possible issues emerging out of existing companies”.

Lets hope that the experience with the SPVs is better for the foreign companies than with the SIVs, which have been so much in the news recently.

About the Author: Yogesh Dashrath is a financial services professional based in Europe, and keenly tracks the Indian Real Estate market, and can be reached using the contact page of this site.