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joForeign Investment

Regulations in Real Estate

February 2005 Market Research Series - India

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Indian Government undertakes deregulation of foreign investment in real estate

Continued Deregulation

In a significant development on 24th February 2005, the Central Government’s Cabinet Committee on Economic Affairs,

cleared a proposal for 100 per cent foreign direct investment (FDI) in construction and development projects. These proposals

will now be cleared through the automatic route and will no longer have to approach the Foreign Investment Promotion

Board (FIPB) for clearances.

The various segments for FDI include townships, housing, built-up infrastructure and construction-development projects,

(but will not be restricted to housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational

facilities, city and regional level infrastructure) in order to catalyse investment in a vital sector of the economy.

Key Features

The salient features of the proposal cleared by the government are:

a) FDI would be permitted up to 100% under the “automatic route” under the ambit of which foreign investors would only

need to intimate FIPB of their intention to invest and not seek specific approval.

b) Minimum area to be developed under each project would be:

Development projects, which could be of any nature and not limited to office buildings, IT/Business parks, shopping

centres, industrial/logistic and warehousing facilities, hotels and serviced apartments - Minimum built up area of 

50,000 square metres.

Plotted housing developments wherein only individual plots of land with support infrastructure such as roads and

utility connections are sold to individual occupiers within a large development - Minimum land area of 10 hectares.

In case of a project combining elements of both the above categories, the investor would be required to meet only one

of the above two criteria.

c) The investment would further be subject to the following conditions:

Minimum capitalisation of US $10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with

Indian partners. The funds would have to be brought in within six months of company commencing its business.

Original investment cannot be repatriated before a period of three years from completion of minimum capitalization.

However, the investor may be permitted to exit earlier with prior approval of the government through the Foreign

Investment Promotion Board (FIPB).

d) The foreign investor would not be permitted to sell or trade in undeveloped plots or raw land. “Undeveloped plots” willmean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, have not been made

available. It will be necessary that the investor provides this infrastructure and obtains the completion certificate from

the concerned local body/service agency before he is allowed to dispose the plots.

This measure has been provided in order to discourage foreign investment in speculative investment in trading of the

land and without any development or any value addition.

e) The project shall conform to the norms and standards, including land use requirements, provision of community amenities

and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations

of the State government/ municipal/local body concerned in the city.

This essentially means that now State governments and municipal bodies will be approving such projects. The Central

government’s role would be limited to policy level issues.

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Office

IT/ Business Parks

Residential

Hotels/ ServicedApartments

Foreign investment notallowed in pure officedevelopments – as beingdifferent from IT andbusiness parks.

100% foreign investmentallowed in IT / Business

parks approved underIndustrial Parks Scheme2002 (whereas in reality,suburban office buildingshave been occupied only byIT companies or bycompanies engaged in backoffice processing activity)

100% foreign investment inresidential asset class wasallowed under the ambit of Press Note 3 (2002 Series)only in townships of a sizeof minimum of 100 acresplanned with a minimum of 

2,000 dwelling units.

100% foreign investmentallowed in development or

acquisition of existingassets

Foreign investment isallowed in city centre orsuburban office buildingseven if the occupiers were notclassified as forming part of the IT/ Back office sector.

No change

100% foreign investment isallowed in any kind of residential developmentsubject to a minimumproposed built up area of 50,000 square metres.Though such an investment

needs to be greenfield innature and not in acquisitionof a developed property.

No change

However, under the new regime, suchan investment is allowed only at theconstruction stage and for projects of proposed built up area of a minimumof 50,000 square metres.

In the previous regime, foreigninvestment was allowed in IT Parks

at the construction stage, subject tothat such parks proposed to providespace to atleast 3 tenants.

Under the new regime, even facilitiesthat are proposed to be occupied bya single tenant only are eligible forforeign investment at theconstruction stage but subject to aproposed minimum built up area of 50,000 square metres. Thus, foreigninvestors can now invest even in partof a business park or a standalone

office facility dedicated to a singletenant at the construction stage,provided the proposed minimumbuilt up area of 50,000 squaremetres.

100% foreign investment apart frombeing allowed in development of residential properties, is also allowedin development of plotted housingprojects. Plotted housing projects aredefined as projects wherein investoracquires raw land and provides for

infrastructure (power/utilities) andfurther sells down individual plotswithin such a development toindividual home owners who maydevelop their own houses. In order tobe eligible for foreign investments, theminimum size of land for suchdevelopments should not be less than10 hectares.

The regime for hotels, resorts andserviced apartments was alwaysopened to foreign investments. HenceFebruary 2005 announcement has noimpact on the said asset class.

Asset Class Previous Regime February 2005 Regime Comments

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Conclusion

It is evident that the February 2005 announcements have significantly deregulated foreign investment in the Indian

property markets. We believe that high levels of interest amongst cross border investors coupled with the liberalization

measures would lead to significant inflows of international equity into Indian property markets at both enterprise as

well as asset levels.

Although government has not undertaken capital market level deregulation measures such as allowing REIT’s (whether

domestic or foreign owned) to operate in India, recent measures in 2004 to allow international and domestic companies

to operate real estate funds/pooled vehicles through private equity fund route is a step in the right direction.

Some of the key foreign investments announced in the last few quarters are :

Ascendas Pte, Singapore acquires 100% interest in 0.9 million square feet Vanenburg IT Park, Hyderabad.

Lee Kim Tah Holdings, Singapore acquires 100 acres of land from Tamilnadu Government in Chennai to develop anintegrated township.

Emaar Properties, UAE and MGF Properties (a leading development company based in North India) announced a

 joint venture to undertake township projects across various cities in India.

However, such an investment byforeign investors would be allowedonly at the construction stage,subject to a proposed minimum builtup area of 50,000 square metres.

However, such an investment byforeign investors would be allowedonly at the construction stage,subject to a proposed minimum builtup area of 50,000 square metres. Itmay be noted that there has been nochange in the government’s policy tonot allow international retailingcompanies to establish operations inIndia.

Previously, plotted housing projectswere not eligible for foreigninvestment. The new regime allowsforeign investment even in plottedhousing projects subject to aminimum land size of 10 hectares(i.e. approximately 25 acres).

The regime for real estatecomponents of the SEZ schemeswas always open to foreigninvestments. The February 2005announcement has no impact on thesaid asset class.

Asset Class Previous Regime February 2005 Regime Comments

100% foreign investment isallowed in development of such facilities even byinternational investors.

100% foreign investment isallowed in development of such facilities by internationalinvestors.

100% foreign investmentcontinues to be allowed intownships.

100% foreign investment wasallowed in real estatedevelopment within SEZprojects.

Framework of foreigninvestment by internationalinvestors (and not justinternational occupiersthemselves) was unclear innature.

Foreign investment was notallowed in shoppingcentres/malls.

100% foreign investmentallowed, under the ambit of Press Note 3 (2002 Series),only in townships of a sizeof minimum of 100 acresplanned with a minimum of 2,000 dwelling units.

100% foreign investmentwas allowed in real estatedevelopment within SEZprojects.

Industrial/Logistics/Warehousing

Shopping Centres/Malls

Townships

Special EconomicZones (SEZ)

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About Jones Lang LaSalle

Jones Lang LaSalle is the world’s leading real estate services and money management firm, operating across more than 100

markets around the globe. The company provides comprehensive integrated expertise, including management services,implementation services and investment management services on a local, regional and global level to owners, occupiers andinvestors. Jones Lang LaSalle is also the industry leader in property and corporate facility management services, with a portfolioof over 835 million square feet (78 million square meters) under management worldwide. LaSalle Investment Management,the company’s investment management business, is a leading global real estate investment manager with approximately US$26billion of assets under management.

Jones Lang LaSalle has over 45 years of experience in Asia Pacific. With over 8,500 employees operating in 26 markets acrossthe Asia Pacific region, the company’s team of experts is uniquely qualified to give the quality advice needed for making qualityreal estate decisions

Jones Lang LaSalle began its India operations in 1998 and has offices in Mumbai, Bangalore, Delhi, Chennai, Hyderabad and asupporting project & facilities management services office in Pune. Our team of 600+ professionals averages a growth rate of more than 100%. In 2004, over US$100 million worth of transactions were concluded by the Corporate Finance and Investmentsteam for various institutional investors, global firms and local corporates across India.

Committed to delivering valuable solutions with consistently high levels of service and expertise, listed below are ourservice offerings in India:

JONES LANG LASALLE Services In India

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Disclaimer

The information in this document reflects prevailing conditions and our judgement as of this date, all of which are accordingly subject to change. In preparing thisdocument, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources.

Whilst the information contained in this document has been prepared in good faith and with due care, potential investors should make their own enquiries and satisfythemselves as to the accuracy of all aspects of the information. No liability for negligence, misrepresentation or otherwise is assumed for the information containedherein either by Jones Lang LaSalle or its principals, directors or employees.

For further information, please contact:

Jones Lang LaSalle Property Consultants (I) Private Limited.

Hari Krishna + 91-22-5658 1007 (Direct) , +91-98201 48358 Har i.Kr ishna@ap. jl l.com

Associate Director, Capital Markets

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