How can real estate developers in india develop a project with a foreign company

How can Real estate developers in India develop a
Project With A Foreign Company?
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How can Real estate developers in India develop a Project
With A Foreign Company?
With increasing liberalization of the foreign exchange management policies of the RBI and the Central
Government, real estate projects can be developed, both within and outside India, jointly with a foreign
company. The partnership between the Indian and foreign partner may be technical, financial or both.
Indian builders / developers can undertake real estate projects for development of township,
construction of residential/ commercial premises/complexes, roads and bridges jointly with foreign
companies. Foreign Direct Investment (FDI) in the Indian real estate sector by a foreign company is
permitted through the "automatic route", i.e. without requiring the additional approval of the Foreign
Investment Promotion Board.
With money starting to flow into the real estate sector, there is a rising trend among Indian real estate
developers to bring global architectural practices and expertise that are not available here. Increasingly,
developers are entrusting the design work for commercial projects and the master planning of mixed-
use developments to international architectural firms. Customers fancy projects designed by
international firms and from the developer's point of view, it becomes a good marketing and sales
proposition. Of course, the international touch comes at a higher cost. Another downside of hiring
foreign architects is that in some cases they do not understand the complexities of doing business in
India, including tax laws and also cultural considerations.

Formats of Business in India
1. Wholly owned subsidiary in India
Instead of having a joint venture company, a foreign company may incorporate its wholly owned
subsidiary ('WOS') in India, where 100 per cent FDI is permitted. A 100 per cent subsidiary, incorporated
as a private company, is treated as a private company for the purpose of the Companies Act, even
though the foreign holding company is a public company under the law of its country.
A person resident outside India shall be allowed to establish a branch or office or other place of business
to act as a channel of communication between the principle place of business or head office by
whatever name called or represent the interest of the foreign companies executing a project in India in
accordance with the relevant provisions and regulations prescribed under FEMA, 1999.
2. Branch office in India
Foreign companies / NRIs may open branch offices for the purpose of:
 Rendering professional or consultancy services;
 Promoting technical and financial collaborations between Indian companies and parent
company or overseas group companies;
3. Project offices
The project office may be the ideal method for companies to establish a business presence in India, if
the objective is to have a presence for a limited period of time. It is essentially a branch office set up
with the limited purpose of executing a specific project. Foreign companies engaged in turnkey
construction or installation normally set up a project office for their operations in India.
4. Liaison office in India
A foreign company /NRI may open a liaison office in India to promote its business interest, spread
awareness of its products, explore further opportunities and act as a communication channel between
itself and various Indian companies. Liaison offices are not allowed to carry on any commercial, trading
or industrial activity or earn any income in India. It is required to maintain itself out of inward
remittances received from abroad through normal banking channels.

5. Joint Venture
These companies may be established in the following ways:
 Incorporating a company in collaboration with an Indian partner (such companies are
predominantly private companies).
 Incorporating a company in collaboration with an Indian partner and /or with the general Indian
public (such companies are necessarily public companies).
When the foreign contribution is in the form of capital participation, the resultant venture is termed a
joint venture. There are several ways a joint venture can be structured. The Indian experience shows
that the most preferred mode is to set up a private company because under the Indian company law a
private company, unlike a public company, has fewer legal compliance and statutory filing. Due care
should be taken while forming JVC with respect to the controlling interests and rights of the foreign and
Indian participants.

Typical models
1. PRIVATE EQUITY CAPITAL - Pure financial investment to provide base capital required to
undertake larger projects and reduce exposure to debt financing
2. JOINT VENTURE COMPANY - Foreign investor to contribute capital and engineering capabilities.
Indian developer to contribute land and local resources. Both partners have joint ownership of
project specific SPV.
3. JOINT DEVELOPMENT AGREEMENT - Foreign investor sets up Indian presence and undertakes
development activity. Indian partner contributes land and receives deferred consideration in
terms of share of development or share of revenues.
To quote a few examples of Indian developers who have entered into foreign collaborations, Unitech
signed a MOU with Singapore Consortium and Haryana Urban Development Authority for setting up a
Technology Park in Gurgaon.
US based Simon Global Ltd has tied up with the Wadia Group to set up 8-10 luxury shopping malls across
India in the next decade.
Real estate major DLF is planning to develop a modern city centre in Gurgaon, near the 18-hole golf
course on Golf Course Road. The Delhi-based developer has joined hands with global construction major
Hines to implement the project. DLF has formed a 50:50 joint venture with Hines for the purpose. It has
also appointed Robert A M Stern as its architect, responsible for developing the 30-storey city centre on
around 20 acres of land. The total constructed area will be around 2.5 million square feet.
Shriram Properties has announced a joint venture with Prudential Investments, a leading Australian
property development company, to launch premium 'Leisure Lifestyle Township' projects in India.
Initially, Shriram Prudential, the 50:50 joint venture, would invest $ 100 million to develop the projects.
The company has identified Chennai and Bangalore for the first projects, for which it would be acquiring
300-500 acres.
Source: National Housing Bank

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