Foreign investment rules in India, particularly for real estate, are governed by the Foreign Exchange Management Act (FEMA), 1999, and its associated regulations, including the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules). Key points include:

• FDI Routes: Foreign Direct Investment (FDI) can enter via the automatic route (no prior approval, up to 100% in construction projects like townships, residential/commercial premises, roads, bridges, hotels, hospitals, and educational institutions) or the approval route (requires government consent for specific sectors).
• Prohibited Sectors: FDI is banned in real estate business (defined as dealing in land/immovable property for profit, excluding development projects), lottery, gambling, chit funds, Nidhi companies, trading in transferable development rights, and certain agricultural activities.
• Conditions for Construction Sector:
  • Minimum area of 20,000 sq.m. for serviced housing plots.
  • 50% project completion within five years of statutory clearances, with no sale of undeveloped plots until infrastructure (roads, water, drainage, etc.) is complete.
  • A 3-year lock-in period per FDI tranche, with exit allowed after trunk infrastructure development, except for hotels, resorts, hospitals, and educational institutions.
• Foreign Portfolio Investment (FPI): Allows investment in listed securities (e.g., equities, debt), with a 10% cap per FPI in a single Real Estate Investment Trust (REIT), subject to SEBI regulations.
• Restrictions: Non-residents, except Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs), cannot buy agricultural land or farmhouses. Investments from countries sharing a land border (e.g., China, Pakistan) require prior government approval due to national security concerns.
• Reporting: Post-investment filings (e.g., SMF for FDI) and compliance with RBI guidelines are mandatory.

These rules aim to balance foreign capital inflow with national interest, though enforcement and state-level variations can pose challenges. Legal consultation is recommended for compliance.

FDI approval process

FDI (Foreign Direct Investment) approval process in India for sectors requiring government consent (e.g., certain real estate-related activities under the approval route) is governed by the Foreign Exchange Management Act (FEMA), 1999, and the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. The process includes:

• Identify Sector and Route: Confirm if the investment falls under the approval route (e.g., sectors not covered under the automatic route, like investments from border-sharing countries). Most real estate development (e.g., townships, commercial projects) allows 100% FDI via the automatic route, but exceptions require approval.
• Application Submission: Submit an online application via the Foreign Investment Facilitation Portal (FIFP), managed by the Department for Promotion of Industry and Internal Trade (DPIIT). Required documents include:
  • Project details (e.g., land use, investment amount).
  • Business plan and financial projections.
  • KYC of foreign investor (passport, address proof).
  • Board resolution approving the investment.
  • Compliance with sectoral conditions (e.g., 50% project completion within five years).
• Review by Competent Authority: The Ministry of Commerce and Industry, often in consultation with relevant ministries (e.g., Home for security clearance), reviews the application. For real estate, the Ministry of Housing and Urban Affairs may be involved.
• Processing Time: Typically 6-10 weeks, though delays can occur if additional clarifications or security checks are needed.
• Approval or Rejection: If approved, a digital approval letter is issued with conditions (e.g., lock-in periods, reporting). Rejection includes reasons, with an option to appeal or modify the proposal.
• Post-Approval Compliance: File Form FC-GPR with the Reserve Bank of India (RBI) within 30 days of share allotment, reporting the investment, and adhere to stipulated conditions.

The process ensures regulatory oversight, especially for national security or sensitive sectors. Legal and financial advisors are recommended to navigate complexities