Indian Real Estate Laws and Policies Introduction

Indian Real Estate Laws and Policies

 

Introduction to Indian Real Estate Laws and Policies

India’s vast land area has not only attracted large-scale real estate project development, but also promoted the prosperity and development of the local economy. In recent years, the increase in the disposable income of residents, the increase in small families, and the development of second- and third-tier cities and towns have laid the foundation for the further development of the Indian real estate industry. These new developments have attracted more and more investors to enter the Indian real estate market as the Indian real estate market has become more open to foreign direct investment. However, in this highly unorganized industry, investors are also faced with widespread opaque operations in practice.

The purpose of this article is to provide readers with a clear presentation of Indian laws, regulations and policies in the real estate sector, so as to help more real estate investors in India make scientific decisions.

1. What is real estate and real estate development?

Real estate refers to any real estate related to land and construction, and real estate development refers to any construction and development related to land or construction, including residential areas, commercial centers, shopping malls, shopping centers, school buildings, health centers, hospitals, etc. Therefore, all real estate development can be classified as real estate development.

 

According to the Indian Property Act and the General Provisions Act of 1897, the definition of immovable property can be summarized as: Immovable property, including land or income from land, and facilities attached to the land (referring to root or embedded in the land, such as walls or buildings etc.)

 

2. What is Signing of real estate sales or lease contracts?

The bill regulating investors’ real estate transactions (selling, leasing or mortgage) is the “Property Transfer Act.” Related transactions can be achieved through written documents to transfer part of the interest or the entire property interest to the transferee. According to the law, the written document needs to meet the relevant provisions of the contract law.

 

The seller shall disclose to the buyer the major defects of the relevant real estate. If there is a major misunderstanding, the buyer has the right to cancel the sales contract with the seller. This content is stipulated in Chapter 55 of the Property Transfer Act and Chapter 14 of the Indian Contract Law.

There must be effective consideration: The consideration should be reasonable. According to the law, failure to pay the consideration will cause the contract to have no legal effect, except for gifts.

 

Investors can choose to sign a real estate sales contract, real estate lease contract or mortgage contract according to their own plans, as stipulated in Chapters 54, 58 and 107 of the Property Transfer Act.

 Only with the permission of the court, the investor can purchase the minor’s real estate, and the consent of the minor’s guardian can be signed before the sale contract.

 If the purchase contract is signed without the consent of the relevant guardian, the contract can be revoked after the minor reaches adulthood. Therefore, investors need to conduct ownership inquiries in advance to avoid this situation.

 

3. What to do after signing the relevant documents?

The above documents are required to pay stamp duty and complete registration at the Land Registry. The “Stamp Law” provides for stamp duty, but different states also have the right to set the stamp duty rate of their own state, which must be paid in accordance with regulations. Some states provide for two stamp duty payments, once when acquiring the land and once when developing the land.

The written documents required to complete the transaction need to be registered with the land registration authority. As mentioned above, according to Indian law, all written documents related to the income from real property and the income from the transfer of real property greater than 100 rupees must be registered in the land registry.

 

The Registration Act of 1908 provided for the registration of documents. Unregistered documents do not affect the effectiveness of the sale and purchase of leased and mortgaged real estate, but only registered documents can be recognized by the court.

The “Registration Act” stipulates that the documents of transfer of property without registration shall not be used as evidence in court, and only the registered documents can be considered as publicity of the transfer of ownership.

 According to the law, unregistered documents have no value, and if there are defects or defects in related transactions in the future, the registered documents are better than the unregistered documents. Therefore, it is recommendable that the revised documents should be registered with the relevant departments. After the registration is completed, the real estate ownership is transferred.

 

4. What are other regulations pertaining to real estate transactions?

Residents and citizens of India are allowed to conduct any transactions related to real estate, but there are some restrictions on non-indigenous residents.

 

Investors engaged in construction or unit land development need to obtain approvals and permits from relevant local authorities.

 Investors engaged in building construction should note that it is local laws and regulations that regulate construction behavior.

In Delhi, DDA (Delhi Development Authority) and DMC (Delhi Municipal) are the main bodies promulgating such laws and regulations in Delhi.

Investors need to engage in construction under the guidance of relevant building plans, major plans, regional plans, fire protection plans and other laws and regulations.

The planned construction activities must not violate the requirements for the protection of historical relics and building height limits.

 

In addition, some procedures such as fire prevention, sewage discharge and industrial construction permits need to be obtained from local authorities. In accordance with the corresponding laws and regulations, according to the environmental law, industrial areas shall not be constructed near residential areas.

According to the “Environmental Protection Law”, “Air Protection Law”, and “Water Protection Law”, construction and garbage disposal in industrial areas need to be approved by the local state pollution control committee.

 

Construction activities usually use a lot of labor, so investors must also comply with labor laws and labor welfare regulations.

For example, the “Minimum Wage Act” stipulates the minimum wage for workers employed in construction activities, and other labor laws also have guidance requirements on safety and insurance.

 

How many regulations regulate Indian real estate Industry?

The Indian real estate industry is not regulated by a simple one or two regulations, but is shrouded by an intricate legal network containing a series of other regulations derived from this industry.

 In view of the special status of foreign investors, if you want to invest in the real estate sector in India, you must conduct detailed investigations and understandings in advance to avoid that related investment behaviors violate local laws and policies in India.

 

What are the Central + Local Municipal Regulations regarding real estate in India?

The central government bill, local state municipal regulations and the latest foreign investment policies constitute a series of regulations in the real estate field. The real estate transactions regulated by the above-mentioned laws, regulations and policies mainly include sale, lease and mortgage.

What are the provisions in the Law of Contract regarding real estate in India?

Investors who want to invest in real estate in India, such as buying, selling, mortgage, and leasing land, must first determine whether the real estate can be traded, and secondly, investors must have corresponding behavioral capabilities.

The eleventh part of the Indian Contract Law stipulates the ability to conclude a contract: At least 18 years old, of sound mind, and not prohibited by law from signing a contract.

Although non-Indian residents are not allowed to purchase real estate in India, they can sign a real estate lease agreement for residential purposes for less than five years. (From the “India Foreign Exchange Control Act” and related follow-up documents).

 

 

RBI license

Foreign companies, except for companies registered in Pakistan, Bangladesh, Sri Lanka, Bhutan, Afghanistan, and Iran that require the Reserve Bank of India (RBI) permission to obtain real estate, there is no need to set up branches in India to engage in commercial activities and lease real estate as office space. Obtain permission from RBI.

However, the company needs to obtain foreign exchange through legal bank channels, and a corresponding statement must be made in the IPI form within 90 days of the fund transfer. When the company is in liquidation, if the income from the sale of real estate needs to be transferred back to the country, it needs to obtain the permission of RBI.

 

Trading restrictions and Foreign Exchange Control Act provisions

Foreign companies that set up liaison offices in India are not allowed to purchase real estate such as land, and can only sign real estate lease contracts with a lease term of less than 5 years under the Property Transfer Act. The “Foreign Exchange Control Act” also has relevant provisions.

 

Non-Indian residents are not allowed to buy and sell real estate, but they can invest in related real estate development enterprises in accordance with the regulations of RBI and FDI without obtaining prior approval from relevant government departments. Investors must notify RBI within 30 days of remittance of funds.

 

Neither Indians, Indian residents nor foreigners are allowed to buy or sell agricultural land, farm land and plantation land (not including tea plantation). These are stipulated in the “Foreign Exchange Control Act” and foreign direct investment policies.

 

Registration and Inquiry

Secondly, investors need to check the ownership of the relevant real estate, or to understand the status of the real estate they will invest in. India’s 1908 “Registration Act” requires that all written documents involving the generation of real property or the transfer of real property with a gain of more than 100 rupees must be registered in the land registry.

These documents/contracts concerning the ownership of real estate mainly include sales and purchase contracts, lease contracts or mortgage contracts. At present, real estate transfer contracts in the name of investors or transferees must be registered in the registry.

Investors can choose to inquire about the ownership of the real estate they invest in, and only need to pay relevant fees as required.

The details of the real property recorded in the registry include all the owners of the real property and the debts of the real property. Investors can also find out whether there is a mortgage certificate to clarify whether the real property has debts.

 

 

What are the conditions that foreign investment should meet in India?

Foreign direct investment in parks, housing, infrastructure construction and development projects (including but not limited to schools, residential buildings, commercial real estate, theaters, etc.), regional infrastructure such as roads, bridges, etc. are allowed to hold 100% of the shares. But the following conditions need to be met:

 

(1) The residential project development area should be at least 10 hectares (or 25 acres).

 

(2) The minimum built-up area of ​​construction and development projects should reach 50,000 square meters.

 

(3) Foreign investors need to provide at least US$10 million in registered capital. If it is a wholly-owned subsidiary, it needs to pay US$10 million in registered capital.

If it is a joint venture with an Indian partner, it needs US$5 million in registered capital. If both forms are available, it is sufficient to satisfy either condition.

 

(4) Funds should be in place within 6 months after starting the business.

 

(5) The original capital cannot be withdrawn within 3 years after completing the minimum capital injection. The 3-year lock-up period shall be calculated from the date of receipt of foreign direct investment funds or completion of capital injection.

However, investors can withdraw their capital early by obtaining prior approval from the government (Foreign Investment Promotion Committee);

 

(6) 50% of the project should be completed within 5 years after obtaining all policy approval procedures.

 

(7) Investors are not allowed to transfer the unfinished part of the development (undeveloped refers to roads, water supply, street lighting, drainage, sewage and other infrastructures that have not been completed according to regulations).

 

(8) The investor must complete the infrastructure construction and obtain the completion certificate from relevant local departments and agencies before being allowed to dispose of the residential unit.

 

(9) The project needs to comply with relevant regulations and standards, including land use requirements, community facilities and other requirements stipulated in the construction management regulations, laws and regulations, and regulations and requirements of the state government and municipal departments and other local departments.

 

(10) Investors also need to be responsible for obtaining all approvals, including architectural drawing plans, internal and surrounding infrastructure development, development payments, external development and fees, and other requirements stipulated by the state government and municipal departments and other local departments.

The municipal departments of the state government and other local authorities that approve the building development plan will monitor whether the developer complies with the above approval conditions.

 

If foreign investors invest in the construction and development of hotels, hospitals or special economic zones, they do not need to comply with the above conditions and requirements. However, investors need to comply with the “Special Economic Zone Law” and the construction and development requirements of the Special Economic Zone. (India currently has 173 special economic zones operating.

 

Conclusion

India’s Special Economic Zones (SEZs) are fundamentally different from China’s special economic zones. They are also small in scale and do not have the functions of comprehensive development and social development. Some single investment projects can also be applied for Special Economic Zone.)

 

 

Author’s Bio

Name: Ajay Rastogi

Educational Qualification: LLB

Profession: Advocate / Lawyer

Work Experience: 20 Years of Legal Practice

Profile Link: https://lawjc.com/members/advajayrastogi/

 

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