INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Megha Arora, JSA
economic zones, educational institutions and old-age homes. FDI is permitted in certain completed projects, such as the operation and management of town - ships, malls/shopping complexes and business centres, with three years’ lock-in as mentioned above being applicable to investments in such completed projects. The earning of rent/income on lease of property not amounting to transfer will not be considered as real estate business. Exchange control laws regulate foreign invest - ments in India by entities in countries that have a land border with India. If the investing/acquiring entity or beneficial owner in an investing/acquir - ing entity is an entity set up in – or an individ - ual resident in – China, Pakistan, Afghanistan, Nepal, Bhutan, Bangladesh or Myanmar, such investing/acquiring entity would require prior government approval for their proposed invest - ment or purchase of shares (or other equity- linked securities) in an Indian company. “Ben - eficial ownership” has not been defined, but it is typically pegged to 10% of the shareholding held by the beneficial owner in any investing/ acquiring entity. Accordingly, authorised dealer banks (AD Banks) have been authorised by the RBI to secure the necessary declarations from foreign investors certifying that the necessary threshold of beneficial ownership has been com - plied with. This approval requirement will also be triggered in the event of transfer of owner - ship of any existing/future FDI in an Indian entity that directly or indirectly results in the beneficial ownership falling within the restriction set out in this paragraph. Certain additional conditions may apply, espe - cially under any project-specific approvals obtained, lease documents, etc, if, for instance, a foreign entity is investing in, or gaining control
over, an Indian investee entity, or if there is any reconstitution of the board of directors of the Indian investee entity, or where the Indian inves - tee entity takes on additional debt and if any charge is created on the project land, pledge of shares, etc. In any change of control, there may be additional compliance requirements, includ - ing obtaining pre-facto approvals in connection with the transaction under such project-specific approvals and/or lease documents.
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
Typical fundraising means for real estate com - panies include FDI, REITs, alternative investment funds (AIFs) and debt financing, including loans, debt capital markets and external commercial borrowings (ECBs). FDI The foreign exchange regime prohibits foreign investment into companies that are engaged purely in “real estate business” – ie, companies dealing in land and immovable property with a view to earning profit therefrom (not including the development of townships, the construc - tion of residential/commercial premises, roads or bridges and REITs regulated under the REIT Regulations). FDI up to 100% is permitted under the automatic route for companies engaged in these sectors, subject to certain limited condi - tions. Entities engaged in real estate broking services are also permitted to receive up to 100% FDI under the automatic route. Earning rental income is also not considered real estate business, as mentioned above.
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