Indian Real Estate Industry- article on Business Setup A part of ebizwire of StartBizIndia

1. Industry of the Month
“The Real Estate
Industry”
eBizWire
Vol. I Issue. XI, January 2013
Insight
Biz Policy Updates 2
The Indian Real Estate Industry 4
8
Business Idea of the Month
Upcoming Business Summit 9
Contact us 10
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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
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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
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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 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.
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Now, the RBI, through a notification dated 07 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 External Commercial Borrowings
projects for low cost affordable housing
projects
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RBI, through a notification dated 17 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.
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4. Real Estate Industry in India
It’s a fact now that even when the world economy is in doldrums, India
though 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 India’s 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 and
residential & non residential buildings. The entities involved in the real
estate business are: landlords, developers, builders, real estate agents, THE REAL ESTATE
tenants, buyers, etc. INDUSTRY
How is the market categorized?
Commercial Real Estate
The Real Estate Industry is broadly segmented into 4 categories:
Commercial, Residential, Retail and Hospitality Real Estate.
Housing Real Estate
The demand for commercial property is on the rise. Thanks to the
country’s economic growth. Because of the growth, the urban segment in
the population is slowly and steadily expanding. The urban population is Retail Real Estate
expected 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. Hospitality Real Estate
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 estate as well.
Rising household incomes also increases scope for hospitality real
estate aspeople start seeking more balance between their work and
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5. Real Estate Industry in India
leisure. One wouldn’t 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?
DEMAND IN THE REAL ESTATE SECTOR
COMMERCIAL PROPERTY HOUSING PROPERTY
Demand mainly arising from Demand for such property The housing segment is the
metro cities which act as the to be on the rise owing to biggest contributor out of all
Country’s communication shortage in both rural & segments (www.info.shine.com)
system to interact with the urban areas alike.
foreign nations.
The demand is expected to
Developers now focus more rise by 19% every year
on lease & maintenance (www.info.shine.com)
contracts than sales.
RETAIL PROPERTY HOSPITALITY PROPERTY
The growth on retail front Majorly constitutes hotels &
more or less dependent on convention centres and
collaborations with foreign majorly focussed in Delhi
retail brands hence a slow and Mumbai.
and steady rise can be
expected
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-á-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
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6. Real Estate Industry in India
Competition Policy, every real estate project prior to launch has to seek
almost 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 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 National
3. 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 consent
5. 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 LAWS
1. Rent Control Act To ensure fair rent to the landlords and
protection 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.
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7. Real Estate Industry in India Indian Real Estate sector has
Apart from some other land related laws, the entities operating in the real earned FDI worth more than
estate sector need to be compliant with various environment laws like the
20 Billion USD in past 12
Environment Protection Act and the relevant laws for prevention and
control of air and water pollution. Depending on the kind of business, the years and received PE worth
entity might even have to comply with the various construction and labor 1700 Million USD during
laws. 2011.www.ibef.org
The Real Estate Industry providing a myriad of investment
opportunities
In the recent times when the Country has been struggling with the ever Some major Foreign Investors in the
weakening Indian Rupee against the USD, NRIs have found a reason to Indian Real Estate Sector:
rejoice especially in Real Estate.
 Emmar Properties, Dubai
Before the year 2005, only NRIs and Persons of Indian Origin were
 Laing O’Rourke, UK
allowed to invest in the housing and real estate sectors and other Foreign
 Morgan Stanley Real Estate
Investors were allowed to invest only in development of integrated
townships and settlements by way of wholly owned subsidiaries or Joint  Royal Indian Raj international
Ventures. The avenues for the foreign investors fully opened in 2005. Corporation, Vancouver
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 of
capitalization, 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.
Government’s efforts were successful to a great extent, especially in
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increasing investment by more Public Private Partnership. The 12 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.
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8. Business Idea of the Month
A CONSTRUCTION COMPANY
Considering the growth being witnessed in the real estate sector today,
it’s 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, 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
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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
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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
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10. Biz India News
Nitesh Latwal Visit us at
E: nitesh@indiacp.com
D: +91.11.40622249
M: +91 9873521481 A Venture of
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D- 38, 1 Floor, South Extension, Part I
New Delhi – 110049
Ritika Kharbanda
E: ritika@indiacp.com T: +91.11.40622200 F: +91.11.40622201
E: info@startbizindia.com
D: +91.11.40622246
M: +91 9899180593
Disclaimer:
This paper is a copyright of Corporate Professionals (India) Private Limited. The entire content of this
paper have been developed for the new startups. The author and the Company expressly disclaim all
and any liability to any person who has read this paper, or otherwise, in respect of anything, and of
consequences of anything done, or omitted to be done by any such person in reliance upon the
contents of this paper.
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