EY India Real Estate EY s point of view on Amended Foreign Direct Investment (FDI) Policy on Construction Development Sector

Transcription

1 16 vember 2015 EY India Real Estate EY s point of view on Amended Foreign Direct Investment (FDI) Policy on Construction Development Sector

2 Q.1 When will be the proposed changes to the FDI Policy in construction development sector be effective? Q.6A Can an Indian Company having under construction project, raise money in the form of FDI? The changes to the FDI Policy on construction development sector shall be effective on the issuance of the Press te by Department of Industrial Policy & Promotion, Ministry of Commerce and Industry, Government of India. The Press release issued on 10 vember 2015 is a policy announcement of the Government. Q.2 Whether the changes to the FDI Policy will be applicable prospectively or retrospectively? The recent changes to the FDI Policy should be applicable to all investments whether made before or after the issuance of the Press te. Q.3 Is there any minimum area requirements? There are no minimum area requirements. Q.4 Is there any minimum capitalisation requirement? There is no minimum capitalisation requirement. Q.5 Is there any change in the definition of real estate business?, definition of real estate business has been amended. Earning of rent/ income from lease of property, not amounting to transfer, should not be considered as real estate business. Therefore, this activity should be considered as a permissible activity for an Indian Company with FDI, regardless of the sector. Q.6B Is there any time limit within which such FDI has to be brought in? There is no such time limit. Q.6C Is there any threshold of development/cost before which such FDI has to be brought in or after which such FDI cannot be brought? There is no such threshold; however, if FDI is brought close to completion, then it is likely to be considered as FDI in a completed project. Q.7 What are the conditions for bringing FDI in a completed project? There are two conditions for bringing FDI in a completed project i.e. (i) There is a lock-in period of 3 years calculated with reference to each tranche of FDI. (ii) Transfer of immovable property or part thereof by the Indian Company is not permitted till the completion of entire lock-in period i.e. completion of lock-in period for last tranche of FDI in completed project.

3 Q.8A Can a resident transfer the shares of an Indian Company which has a completed project to non-resident investor? Q.10A Can a non-resident investor transfer his investment in an Indian Company having land/ under-construction project to another non-resident? Q. 8B Are there any conditions attached to such a transaction such as minimum size etc.? Q. 8C Are there any conditions on the nonresident buyer who has bought such shares from the resident? Q.9A Q.9B Q.9C, the following 2 conditions shall apply: (i) There is a lock-in period of 3 years calculated with reference to each tranche of FDI. (ii) Transfer of immovable property or part thereof by the Indian Company is not permitted till the completion of entire lock period i.e. completion of lock period for last tranche of FDI in completed project. Can a non-resident investor transfer shares of an Indian Company owning completed assets to another nonresident investor? Are there any conditions applicable on the non-resident buyer in respect of such transaction? Are there any conditions applicable on the non-resident seller in respect of such transaction? Q.10B Are there any time limits or conditionalities applicable to the selling non-resident investor in respect of such transaction? Q.10C Are there any time limits or conditionalities applicable to the buying non-resident investor in respect of such transaction? Q.11A Can a non-resident investor transfer his investment in an Indian Company having land/under-construction project to another resident? Q.11B Are there any conditionalities or time limits applicable to the selling nonresident investor in respect of such transaction?, the selling non-resident investor can transfer the shares of the Company at the earliest of the following: a) Completion of 3 years with reference to each tranche of foreign investment; or b) Completion of trunk infrastructure for the project; or c) Completion of the project Q.12 Can an Indian Company having FDI sell undeveloped land at a profit in rupee terms?, as the same will be construed to be real estate business.

4 Q.13 Can an Indian Company having FDI sell undeveloped land at cost or loss in rupee terms? A better view is that the Indian Company may be permitted to sell undeveloped land at cost or at a loss as it should not fall in the amended definition of real estate business. Q.14 Which asset classes do not have any lock-in conditions? The following asset classes do not have any lock-in conditions: Hotels & Tourist Resorts; Hospitals; Special-Economic Zones (SEZ s); Old-Age Homes; Educational Institutions; Investment by n-resident Indians (both on repatriation and non-repatriation basis); Industrial Parks; Warehouses; Amusement Parks; Service Apartments; Business Centres; Sports Infrastructure (Stadiums etc.). Disclaimer Our point of view herein is not binding on regulators and there can be no assurance that regulators will not take a position contrary to our point of view. Our point of view is based on our understanding of the Press release issued on vember 10, 2015 by Department of Industrial Policy & Promotion, Ministry of Commerce and Industry, Government of India in respect of review of Foreign Direct Investment (FDI) policy on various sectors. There may be additional details which may be introduced when the Press te is issued.

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