the indian real estate industry ebizwire january 2013

7/29/2019 The Indian Real Estate Industry EbizWire January 2013

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F o r m o r e i n f o o n B u s i n e s s s e t u p v i s i t w w w . s t a r t b i z i n d i a . i n

P a g e | 1 For Business setup queries email at

[email protected] call at 011 40622249

Insight

Biz Policy Updates 2

The Indian Real Estate Industry 4

Business Idea of the Month8

Upcoming Business Summit 9

Contact us 10

eBizWireVol. I Issue. XI, January 2013

Industry of the Month

The Real Estate

Industry
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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

by RBI and SEBI from time to time. RBI, through a notification dated 24th

January, 2013 has modified the present limits:

Investment by FIIs

TYPE OF

INVESTMENT

CURRENT LIMITS MODIFICATIONS

Government

Securities

USD 20 Billion -

Corporate Debt USD 45 Billion

Sublimit of USD 25Billion for bonds ofinfrastructure companies(USD 3 Billion for QFIssubject to a residualmaturity of 5 years)

USD 50 Billion

Sublimit of USD 25Billion for bonds ofinfrastructureCompanies (Residualmaturity for investmentby QFIs modified to 3years).

Remaining USD 25Billion for noninfrastructure 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

INVESTMENTCURRENT LIMITS MODIFICATIONS

Government

Securities

Overall limit of USD 20

BillionWith residual maturity of

3 years for first

purchase of up to USD

10 Billion

Overall limit increased

to USD 25 Billion with thesub-limit being increased

to USD 15 Billion.

The condition for residual

maturity has been

dispensed with.

Non

Infrastructure

Debt

Investment allowed withinthe prescribed USD 25Billion limit for noninfrastructure debt

RBI reviews the limits for Foreign

Investment by SEBI registered

FIIs in Government Securities and

Corporate Debt

Legal HeadlinesBiz Policy Updates


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Biz Policy Updates

ECB policy for InfrastructureFinance Companies Reviewed

External Commercial Borrowings

for low cost affordable housing

projects

InfrastructureDebt

USD 22 Billion withlock-in period of oneyear.

(Sublimit of USD 10Billion for Non Residentinvestment NCDs/Bonds in infrastructuresector)

Included in USD 25Billion limit for FIIinvestment in bonds ofinfrastructure

companies.

Requirement for lockin period dispensedwith.

The residual maturityperiod for entire USD22 Billion uniformlykept at 15 months.

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 07th

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 17th

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.

Legal Headlines


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Its a fact now that even when the world economy is in doldrums, Indiathough 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 andresidential & 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 isexpected 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 estateas well.

Rising household incomes also increases scope for hospitality real

estate aspeople start seeking more balance between their work and

Real Estate Industry in India

Commercial Real Estate

THE REAL ESTATE

INDUSTRY

Housing Real Estate

Retail Real Estate

Hospitality Real Estate


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Real Estate Industry in Indialeisure. 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?

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

The housing segment is the

biggest contributor out of all

segments (www.info.shine.com)

COMMERCIAL PROPERTY

Demand mainly arising from

metro cities which act as theCountrys 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 toshortage in both rural &

urban areas alike.

The demand is expected to

rise by 19% every year

(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.

DEMAND IN THE REAL ESTATE SECTOR
http://www.startbizindia.in/http://www.startbizindia.in/http://www.startbizindia.in/mailto:[email protected]://www.info.shine.com/http://www.info.shine.com/http://www.info.shine.com/http://www.info.shine.com/mailto:[email protected]://www.startbizindia.in/


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Competition Policy, every real estate project prior to launch has to seekalmost 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 Purpose

1. The transfer of Property

Act 1882

To register all exchanges of immovable

property whether by way of sale,

mortgage, gift, lease or any other means.

2. Indian Contract Act,

1872

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

Act, 1908

To conserve evidence and title, thereby

preventing fraud. The Act details which

instruments are to be compulsorily

registered under the act and under what

formalities.

4. The Specific Relief Act,1963

To enforce an individual civil right of aperson who is dispossessed of an

immovable property without his consent

5. Land Acquisition Act,

1984

To facilitate the governments acquisition

of privately held land for public purposes

Local Authorities &societies under the Co-

operative Societies Act can acquire the

land for developmental activities through

the Govt. under this act.

6. The Indian Evidence Act,1872

To provide clarity in case the title of any

person as an owner of a piece of

immovable property is questioned.

STATE LAWS

1. Rent Control Act To ensure fair rent to the landlords andprotection of tenants against eviction

2. Stamp Duty Act The collect stamp duty on all documents

which are registered. The Stamp duty

varies with the state

3. Property Tax To levy municipal taxes that can be utilized

for the upkeep of basic civic services in the

city.

Real Estate Industry in India

As per a report by MCAs

Committee on National

Competition Policy, Every

real estate project requires

some 52 odd approvals


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Apart from some other land related laws, the entities operating in the realestate sector need to be compliant with various environment lawslike 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 investmentopportunities

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 ofcapitalization, 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

increasing investment by more Public Private Partnership. The 12th 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.

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

Real Estate Industry in IndiaIndian Real Estate sector has

earned FDI worth more than20 Billion USD in past 12

years and received PE worth

1700 Million USD during

2011.www.ibef.org
http://www.startbizindia.in/http://www.startbizindia.in/http://www.startbizindia.in/mailto:[email protected]://www.ibef.org/http://www.ibef.org/http://www.ibef.org/http://www.ibef.org/mailto:[email protected]://www.startbizindia.in/


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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, 18943. The Delhi Reforms Act and The Delhi Land Revenue Act,1954

ENVIRONMENTAL LAWS

1. The Environment Protection Act, 1986 (For environmentclearance)

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 ofbuilding 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

Business Idea of the Month

A CONSTRUCTION COMPANY


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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:

15th-17

thFebruary, 2013, Pragati Maidan, New Delhi

E-sparks- 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:

16th

February, 2013, Bangalore

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:

21st

February, 2013, Hotel Capitol Hill, Ranchi

Logistics, 2013

E-sparks, 2013

Public Private

Partnership, enhancing

capacity for growth

Upcoming Business Summit


10/10



i h@i di ll 011 40622249

Disclaimer:

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

contents of this paper.

Nitesh Latwal

E: [email protected]

D: +91.11.40622249M: +91 9873521481

Visit us at

A Venture of

D- 38, 1st

Floor, South Extension, Part I

New Delhi 110049

T: +91.11.40622200 F: +91.11.40622201


Ritika Kharbanda


D: +91.11.40622246M: +91 9899180593

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