Government Brings Clarity in FDI Policy in Real Estate

On Monday, the government widened the meaning of ‘Real Estate Business’ under the Foreign Direct Investment (FDI) policy. The real estate business now includes dealing in immovable property and land to earn profit. The consolidated FDI policy, 2020, prohibits FDI in real estate business or construction of farmhouses.

Meaning of Real Estate Business in FDI Policy

The Department for Promotion of Industry and Internal Trade (DPIIT) amended the meaning of real estate business started in the consolidated FDI policy, 2020, through a press note. The amended meaning states that the real estate business means dealing in immovable property and land to profit from them. 

However, the real estate business does not include the following: 

  • Construction of residential or commercial premises
  • Development of townships
  • Construction of roads and bridges
  • Construction of recreational facilities
  • Construction of educational institutions
  • City and regional-level infrastructure 
  • Real Estate Investment Trusts (REITs) regulated and registered under the SEBI (REITs) Regulations, 2014

Prohibition of FDI in Real Estate Business

The press note issued by the DPIIT also clarified that FDI is not permitted in an entity engaged or proposes to engage in the construction of farmhouses, real estate business and trading in Transferable Development Rights (TDRs). However, it added that earning income or rent on the lease of property not resulting in its transfer would not amount to the real estate business and thus permitted under FDI policy.

Thus, the government has clarified that FDI is prohibited in real estate businesses dealing in immovable property and land to earn profit. However, FDI policy permits 100% FDI under the automatic route for the construction development segment, including townships, roads and bridges, housing, educational institutions, recreational facilities, leasing property that earns income or rent, and real-estate broking services.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in

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