Date post: | 15-Jan-2016 |
Category: |
Documents |
Upload: | ross-batterton |
View: | 214 times |
Download: | 0 times |
Foreign Direct Investment in Indian Real Estate
Dynamics of the Real Estate Market
Dun and BradstreetChennai
March 2007
Ashwin RameshPrimary Real Estate Advisors
The Road so far
Press Note 2 (2000)
- FDI by NRI in housing & RE
1999
2005
Real Estate Mutual Funds
June 2006
2001-2002
2004
Press Note 4 (2001)
- FDI in integrated township (100 acres)
- FDI in hotels & tourism
- FDI in IT Parks (2002)
April 2004 Amendment to VCF & FVCI Regulations removing RE from negative list
Banks – inv. in VCF priority sector
Press Note 2 (2005)
Investment norms NRIs relaxed
Opening of FDI in select projects
Real Estate VCFs
FDI in real estate further relaxed
REITs/ REMFs
Regulatory framework - Press Note 2 (2005)
FDI up to 100% is permitted under automatic route
Development criteria:
Minimum 10 hectares / 25 acres to be developed for serviced housing plots
For construction-development projects, minimum built-up area of 50,000 sq mts
In case of a combination project, any one of above two conditions would suffice
Investment conditions
Minimum capitalization of US$ 10 Mn for wholly owned subsidiaries & US$ 5 Mn for joint ventures with Indian partners
Funds to be brought in within 6 months of commencement of business
Original investment cannot be repatriated before a period of 3 years from completion of minimum capitalization. Investor may be permitted to exit earlier with prior Government approval.
At least 50% of project must be developed within 5 years from date of obtaining all statutory clearances
Investor not permitted to sell undeveloped plots
Project to conform to norms & standards laid down by respective State authorities
Investor responsible for obtaining all necessary approvals as prescribed under applicable rules/ bye-Laws /regulations of the State
Concerned Authority to monitor compliance of prescribed conditions by developer.
Other conditions
Press Note 2 [2005] - Unresolved issues…..
What sort of development is envisaged – Greenfield / Brownfield
Up to what stage in a project can a FDI investor participate?
What comprises ‘built-up area’?
Whether USD 5 Mn investment norm applies to each foreign investor in a joint venture (‘JV’) separately or to foreign investors for the JV company as a whole ?
- If two foreign partners invest in Indian JV Company: minimum capitalization will be USD 5 million or USD 10 million ?
Press Note 2 [2005] - Unresolved issues
Contd…
Whether lock in applies only to minimum capitalization or entire original investment?
When does the 6-month period for capitalization commence with respect to projects undertaken by existing companies and how is the lock in period determined?
– Incorporation Date - January 1, 2006
– Signing of the JV agreement - April 1, 2006
– Minimum capitalization to be completed by what date?
– Assuming minimum capitalization completed June 1, 2006– 1st tranche of USD 10 million brought in June 1, 2006– 2nd tranche of USD 100 million brought in January 1, 2007
– Lock in period on what amount and for what period ?
Whether premium on issue of shares part of minimum capitalization?
Whether fully convertible debentures can be considered for the purpose of minimum capitalization?
Press Note 2 [2005] - Unresolved issues
Contd…
FDI vs. FVCI ….deadlock continues
Does FVCI need to follow FDI restrictions ?
Since September 2005 no new FVCIs
RBI fears asset bubble, wants to restrict capital flows into real estate
FDI Investments under automatic route pour in
Exit pricing restrictions apply, market believes they will fade away
Impact of FDI
So far, negligible
About USD 750 Million deployed
Potential, huge
Another USD 7 – 8 Billion waiting in the wings
Some recent transactions
Companies USD Mn
Morgan Stanley–Oberoi Constructions 152Citigroup Property Investors- 120Gera Developments Och Ziff-Nitesh Estates 60DSP Merrill Lynch-Mantri Developers 55Morgan Stanley-Mantri Developers 65Morgan Stanley- Alpha G Corp 65
Indian Realty Companies Listed on AIM
Name of the Company Amount Raised (US$ Mn) Unitech Corporate Parks Plc (Unitech Ltd) 360
Trinity Capital Ltd 450
Ishaan Real Estate Plc ( K Raheja Corp ) 350
Dev Properties Ltd (Indiabulls Real Estate Ltd) 265
Noida Toll Bridge 50
Hiranandani Constructions Ltd 750
Impact on real estate consumers
Combined with a conducive land supply and approvals environment, and infrastructure, FDI can create high quality real estate stock of international specifications at reasonable prices
Better choice, better use of technology, international amenities and planning
Compared to 1991, don’t we have today much better cars, motorcycles, telephone systems, white goods ?
Impact on developers
Professionalise
Accountable
Raise the bar
Adopt global best practices
Attain size and scale
Change their mindset
Improve or perish
Deal Structuring – Layered process
Agreement – Fund and Developer – key issues
Affirmative Voting Rights Reserved Matters Indemnification against third party claims Debt raising Non Compete Liquidation Event Dispute Resolution Tag Along Exit
Impact on the industry
Consolidation
Standardisation of product
Tighten and improve supply chain
Convergence of capital markets
Increased participation by the finance community – sophisticated
structuring, instruments, retail investor
Environment friendly
Westernised
First, the roadblocks need to be cleared
Land supply laws
Land Zoning and Approvals Process
Infrastructure – hard and soft
Stable policy that is forward looking
A word of caution
15 - 22 May 2006 22 - 28 Feb 2007
FII Outflow (USD Mn) 851 870
% Fall in Sensex 11 7.7
Thank You
If you would like any further information or clarifications, please contact:
Name E-mail Tel No.
Ashwin [email protected] 91-22-2285 303291-98210 40267
Address: Primary Real Estate Advisors P LtdRegent Chambers, #107, Nariman Point,Mumbai – 400 021India
Website: www.PrimaryIndia.com
Contact details
The information contained in this presentation is of a generic nature and is not intended to address the circumstances of any particular situation/personWe acknowledge that this presentation is merely an overview and has been prepared by us for your benefit and should not be construed as a legal opinion. The content provided here treats the subject and issues covered herein in generic form and is purely for academic purposes only This presentation does not constitute a public/private offer to sell or a solicitation of an offer to buy the units of the funds described herein. The details of the funds are for example purposes only We are relying upon relevant provisions of the laws, and the regulations thereunder, guidelines and the administrative interpretations thereof, which are subject to change or modification by subsequent legislative, regulatory, administrative, or judicial decisions.This presentation should not reproduced or distributed or provided to others without the prior consent of Primary Real Estate Advisors Private Limited.
Disclaimer - Terms of Use