Business Set up Article: Indian Real Estate Industry


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Business Set up Article: Indian Real Estate Industry

  1. 1. Industry of the Month “The Real Estate Industry”eBizWire Vol. I Issue. XI, January 2013 InsightBiz Policy Updates 2The Indian Real Estate Industry 4 8Business Idea of the MonthUpcoming Business Summit 9Contact us 10 For more info on Business setup visit Page |1 For Business setup queries email at nitesh@indiacp.comor call at 011 40622249
  2. 2. Biz Policy Updates Legal Headlines RBI reviews the limits for Foreign Investment by SEBI registered FIIs RBI reviews the limits for Foreign in Government Securities and Corporate Debt 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 OF CURRENT LIMITS MODIFICATIONS INVESTMENT Government USD 20 Billion - Securities Corporate Debt USD 45 Billion USD 50 Billion Sublimit of USD 25  Sublimit of USD 25 Billion for bonds of Billion for bonds of infrastructure companies infrastructure (USD 3 Billion for QFIs Companies (Residual subject to a residual maturity for investment maturity of 5 years) 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 CURRENT LIMITS MODIFICATIONS INVESTMENT Government Overall limit of USD 20 Overall limit increased Securities Billion to USD 25 Billion with the With residual maturity of sub-limit being increased 3 years for first to USD 15 Billion. purchase of up to USD 10 Billion The condition for residual maturity has been dispensed with. Non Investment allowed within Infrastructure the prescribed USD 25 Debt Billion limit for non infrastructure debt For more info on Business setup visit Page |2 For Business setup queries email at nitesh@indiacp.comor call at 011 40622249
  3. 3. Biz Policy Updates Legal Headlines Infrastructure USD 22 Billion with  Requirement for lock Debt lock-in period of one in period dispensed year. with. (Sublimit of USD 10  The residual maturity Billion for Non Resident period for entire USD investment NCDs/ 22 Billion uniformly Bonds in infrastructure kept at 15 months. sector) Included in USD 25 Billion limit for FII investment in bonds of infrastructure companies.ECB policy for Infrastructure Finance Companies Reviewed ECB policy for Infrastructure Finance Companies ReviewedTill now, the Infrastructure Finance Companies (a category of NBFCs)complying with prescribed norms were allowed to avail ECBs (includingoutstanding ECBs) up to 50% of their owned funds under the automaticroute. ECBs above 50% of their owned funds were being consideredunder the approval route. The end-use for ECBs availed by suchcompanies should be on-lending to the infrastructure sector. SuchCompanies were also required to hedge their currency risk in full. thNow, the RBI, through a notification dated 07 January, has reviewedthese limits and the ECB limit for IFCs under the automatic route hasbeen raised from 50% of their owned funds to 75% of their ownedfunds. Beyond this limit, RBIs approval shall be required. Also, thehedging requirement has been reduced from 100% of their exposureto 75% of their exposure.External Commercial Borrowings for low cost affordable housing External Commercial Borrowingsprojects for low cost affordable housing projects thRBI, through a notification dated 17 December, 2012, has made lowcost affordable housing projects a permissible end use for ECBsunder the approval route. ECBs can now be availed by developers,builders, Housing Finance Companies and the National Housing. Theaggregate limit for financial year 2012-13 is fixed at 1 Billion USD worth ofECBs for this purpose.For this purpose, a low cost affordable housing project would mean aproject in which at least 60 percent of the permissible Floor Space Indexwould be for units having maximum carpet area up to 60 square meters.Slum rehabilitation projects shall also be eligible subject to certainconditions. For more info on Business setup visit Page |3 For Business setup queries email at nitesh@indiacp.comor call at 011 40622249
  4. 4. Real Estate Industry in IndiaIt’s 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 growingeconomies today. With a lot of foreign players coming into the Country andthe competitive indigenous enterprises, the resources of the Country arebeing tapped well and cross industry growth is taking place. A perfectexample of such industry which is growing hand in hand with all othersectors is the Real Estate industry. Developments in sectors such ashospitality, retail, entertainment and services like education and healthcare influence developments in the Real Estate sector too.As per IndianBrand Equity Foundation (IBEF), the real estate in India contributes about5% to India’s GDP.Not only this, the real estate sector is touted to be the second largestemployer in the economy after agriculture. The sector has amplebackward and forward linkages with sectors such as housing &construction and hence connections with various ancillary industries likecement and other building material.What is Real Estate?Real Estate is the land, including the air above it and the earth below itincluding any buildings or structures that may form a part. Real Estateincludes the activities of purchase, sale and development of land andresidential & non residential buildings. The entities involved in the realestate business are: landlords, developers, builders, real estate agents, THE REAL ESTATEtenants, buyers, etc. INDUSTRYHow is the market categorized? Commercial Real EstateThe Real Estate Industry is broadly segmented into 4 categories:Commercial, Residential, Retail and Hospitality Real Estate. Housing Real EstateThe demand for commercial property is on the rise. Thanks to thecountry’s economic growth. Because of the growth, the urban segment inthe population is slowly and steadily expanding. The urban population is Retail Real Estateexpected to cross 590 million by 2030 (Source: here itself,the demand forresidential propertyarises, i.e. because of the increasinghousehold income and the consequent urbanization. Hospitality Real Estate Now urbanization would bring clusters of such population close which is ina phase wherein many of its luxuries are becoming necessities. To cater tothis and its thirst for more choices, there have to be larger stores andhence, the mall culture also blooms which eventually leads to increaseddemand for retail real estate as well.Rising household incomes also increases scope for hospitality realestate aspeople start seeking more balance between their work and For more info on Business setup visit Page |4 For Business setup queries email at nitesh@indiacp.comor call at 011 40622249
  5. 5. Real Estate Industry in Indialeisure. One wouldn’t be wrong in saying that the economic growth of theCountry can boost the demand for real estate in all the segments.How is the demand trending? DEMAND IN THE REAL ESTATE SECTORCOMMERCIAL PROPERTY HOUSING PROPERTYDemand mainly arising from Demand for such property The housing segment is themetro cities which act as the to be on the rise owing to biggest contributor out of allCountry’s communication shortage in both rural & segments ( to interact with the urban areas alike.foreign nations. The demand is expected toDevelopers now focus more rise by 19% every yearon lease & maintenance ( than sales.RETAIL PROPERTY HOSPITALITY PROPERTYThe growth on retail front Majorly constitutes hotels &more or less dependent on convention centres andcollaborations with foreign majorly focussed in Delhiretail brands hence a slow and Mumbai.and steady rise can beexpectedThough a lot of focus is placed on metro cities by the real estatedevelopers, they are these days flocking to smaller cities because of thegrowth prospects offered and the comparative price stability vis-á-visbigger cities. As per a CRISIL report, the residential property hasgenerated about 4 billion USD in 10 cities beyond the top 10 cities of theCountry.Real Estate: A highly regulated sector: The Real Estate sector happensto be one of the most regulated sectors. As per a report by the Ministry ofCorporate Affairs’ Committee on National For more info on Business setup visit Page |5 For Business setup queries email at nitesh@indiacp.comor call at 011 40622249
  6. 6. Real Estate Industry in IndiaCompetition 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 RealEstate sector can be seen below:GENERAL LAWSLaw Purpose1. The transfer of Property To register all exchanges of immovable Act 1882 property whether by way of sale, mortgage, gift, lease or any other means.2. Indian Contract Act, To govern any contract that is entered into 1872 by an individual, partners of a firm, a corporate body, a trust, a sole corporate, and manager of a Hindu Undivided Family As per a report by MCA’s or a foreigner. Committee on National3. The Indian Registration To conserve evidence and title, thereby Competition Policy, Every Act, 1908 preventing fraud. The Act details which real estate project requires instruments are to be compulsorily some 52 odd approvals 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 consent5. Land Acquisition Act, To facilitate the government’s acquisition 1984 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, To provide clarity in case the title of any 1872 person as an owner of a piece of immovable property is questioned.STATE LAWS1. Rent Control Act To ensure fair rent to the landlords and protection of tenants against eviction2. Stamp Duty Act The collect stamp duty on all documents which are registered. The Stamp duty varies with the state3. Property Tax To levy municipal taxes that can be utilized for the upkeep of basic civic services in the city. For more info on Business setup visit Page |6 For Business setup queries email at nitesh@indiacp.comor call at 011 40622249
  7. 7. Real Estate Industry in India Indian Real Estate sector hasApart from some other land related laws, the entities operating in the real earned FDI worth more thanestate sector need to be compliant with various environment laws like the 20 Billion USD in past 12Environment Protection Act and the relevant laws for prevention andcontrol of air and water pollution. Depending on the kind of business, the years and received PE worthentity might even have to comply with the various construction and labor 1700 Million USD duringlaws. 2011.www.ibef.orgThe Real Estate Industry providing a myriad of investmentopportunitiesIn the recent times when the Country has been struggling with the ever Some major Foreign Investors in theweakening Indian Rupee against the USD, NRIs have found a reason to Indian Real Estate Sector:rejoice especially in Real Estate.  Emmar Properties, DubaiBefore the year 2005, only NRIs and Persons of Indian Origin were  Laing O’Rourke, UKallowed to invest in the housing and real estate sectors and other Foreign  Morgan Stanley Real EstateInvestors were allowed to invest only in development of integratedtownships and settlements by way of wholly owned subsidiaries or Joint  Royal Indian Raj internationalVentures. The avenues for the foreign investors fully opened in 2005. Corporation, VancouverNow 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 minimumcapitalization requirements. Moreover the investment is not allowed to berepatriated by the investor before 3 years from the completion ofcapitalization, an exit is available with the approval of ForeignInvestment Promotion Board (FIPB). The FDI policy however expresslyprohibits FDI in construction of farm houses or in real estate business ( in real estate or Transferable Development Rights).Government InitiativesThrough the Budget 2012-13, the Government aimed at increasing theinvestment in infrastructure because the real estate sector is seen as amajor industry contributing to the overall economic growth of the country.Government’s efforts were successful to a great extent, especially in thincreasing investment by more Public Private Partnership. The 12 5 yearplan of the Government focuses on increasing infrastructure so the scopeis open for construction companies as far as the Governmental support isconcerned.Given the increasing affluence of the Indian families, consequentialrise in urbanization and shift of focus from renting to owning aproperty, the future of the Real Estate Sector looks bright. For more info on Business setup visit Page |7 For Business setup queries email at nitesh@indiacp.comor call at 011 40622249
  8. 8. Business Idea of the Month A CONSTRUCTION COMPANYConsidering the growth being witnessed in the real estate sector today,it’s undoubted that the demand for property is on the rise, whethercommercial, residential or retail. Amidst all this, it would make sense ifone started a construction company given the scope of opportunities thatwould arise on doing that. Yes, real estate being a highly regulated sectorwould mean a large number of approvals from various authorities, thepay backs in this business are very promising.For a construction company, both pre and post incorporation approvalsbecome important. Various laws that would apply to your company canbe 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 Page |8 For Business setup queries email at nitesh@indiacp.comor call at 011 40622249
  9. 9. 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: th th 15 -17 February, 2013, Pragati Maidan, New Delhi 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  E-sparks, 2013 problems that are being faced in the industry will be discussed by the participants.  Public Private Date and Venue: Partnership, enhancing th 16 February, 2013, Bangalore 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: st 21 February, 2013, Hotel Capitol Hill, Ranchi For more info on Business setup visit Page |9 For Business setup queries email at nitesh@indiacp.comor call at 011 40622249
  10. 10. Biz India News Nitesh Latwal Visit us at E: D: +91.11.40622249 M: +91 9873521481 A Venture of st D- 38, 1 Floor, South Extension, Part I New Delhi – 110049 Ritika Kharbanda E: T: +91.11.40622200 F: +91.11.40622201 E: D: +91.11.40622246 M: +91 9899180593Disclaimer: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 thecontents of this paper. For more info on Business setup visit P a g e | 10 For Business setup queries email at nitesh@indiacp.comor call at 011 40622249