Historically, the external commercial borrowing (“ECB”) framework under the Foreign Exchange Management Act, 1999 (“FEMA”), read with the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (“FEMA Borrowing Regulations”) and the Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations dated March 26, 2019 (“ECB Master Direction”), adopted a restrictive approach towards real estate-linked end uses.

This position has now been materially revised pursuant to the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 dated February 9, 2026 (“ECB Amendment”). Investment in real estate, acquisition or leasing of land and “real estate business” historically formed part of the restricted end use regime, subject to limited carve outs for specified activities such as Special Economic Zones (“SEZs”), industrial parks, integrated townships and infrastructure sector activities.

While the ECB Amendment retains “real estate business” as a restricted ECB end use, it substantially narrows the scope of activities falling within it and excludes certain development-oriented activities from the scope of the restriction. The regulatory shift, therefore, lies not in the removal of the restriction itself, but in redefining the activities that remain restricted under the ECB framework.

The Revised Scope of “Real Estate Business”

Under the amended FEMA Borrowing Regulations, “real estate business” is specifically defined to mean the purchase, sale or lease of land or immovable property with a view to earning profit therefrom. At the same time, the revised FEMA Borrowing Regulations clarify that certain categories of activities are not treated as restricted real estate end uses under the ECB framework, including purchase, sale and lease, not amounting to transfer, of land or immovable property for the construction and development of SEZs, industrial parks, integrated townships, infrastructure sector activities and construction-development projects. In effect, the revised ECB framework draws a distinction between speculative real estate transactions, which remain restricted, and genuine development or asset creation projects, which are now permissible.

The revised framework is particularly significant as it clarifies that “construction-development projects” are permitted activities and do not fall within the restricted scope of “real estate business”. Such projects include the development of townships, construction of residential and commercial premises, roads, bridges, hotels, hospitals, educational institutions, recreational facilities and city or regional infrastructure.

The amended FEMA Borrowing Regulations reflect a measured policy approach that seeks to distinguish speculative real estate exposure from productive asset creation activities. They continue to restrict activities involving acquisition or monetisation of immovable property for profit, while permitting ECB funding for specified development-oriented projects.

Broader Regulatory Changes Impacting Real Estate under the ECB Amendment

The changes relating to “real estate business” have been introduced as part of a broader revision of the ECB framework under the ECB Amendment. The alignment of the cost of borrowing with prevailing market conditions for transactions with a minimum average maturity period (MAMP) of three years makes the ECB route commercially more attractive for foreign creditors on the supply side. On the demand side, the relaxation of end use restrictions particularly in the real estate domain may create a meaningful alternative for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) and other development focused borrowers.

Until now, offshore financing for Indian real estate developers has largely been sourced through high-yield private credit structures, including listed or unlisted notes and bonds subscribed by foreign credit funds and institutional investors. The revised framework may now enable stronger developers with established execution capabilities to access offshore financing at comparatively competitive pricing, while continuing to preserve risk-adjusted pricing for more leveraged or structurally complex projects.

The revised FEMA Borrowing Regulations also provide eligible borrowers with greater borrowing headroom by permitting ECBs up to the higher of outstanding ECB up to USD 1 billion or total outstanding borrowing, external and domestic, up to 300% of net worth, while excluding eligible borrowers regulated by financial sector regulators from this limit. They also streamline the security framework by setting out the applicable conditions directly in the FEMA Borrowing Regulations, including prior no objection certificate requirements from existing Indian lenders for encumbered assets, a clarification that creation of security does not confer any right on overseas lenders or security trustees to acquire Indian assets, a limitation that enforcement is restricted to the outstanding ECB claim, and a prohibition on RBI regulated entities issuing guarantees for ECBs.

Additionally, the revised ECB framework continues to retain core regulatory safeguards relating to recognised lenders, permitted end uses, reporting obligations, utilisation restrictions and compliance requirements.

Continuing Restrictions and Areas of Regulatory Ambiguity

The ECB Amendment does not amount to a blanket liberalisation of ECB funding for the real estate sector. “Real estate business” continues to remain a restricted ECB end-use, alongside activities such as trading in transferable development rights, investment in capital markets and other restricted activities.

For construction-development projects, the amended framework imposes specific conditions, including that the sale of plots may be undertaken only after development of trunk infrastructure such as roads, water supply, drainage, sewerage and street lighting. Similarly, borrowings for industrial parks are subject to objective development thresholds, including a minimum of 10 (ten) units, a restriction that no single unit may occupy more than 50% (fifty percent) of the allocable area, and a requirement that at least 66% (sixty six percent) of the total allocable area be allocated for industrial activity.

While the revised FEMA Borrowing Regulations introduce greater clarity in relation to development-oriented projects, several interpretational challenges remain. In particular, the distinction between permissible development activity and restricted real estate business may not always be straightforward. Complex structures involving land aggregation, lease-led commercial asset models, mixed use developments, phased monetisation arrangements or projects transitioning from development stage assets to income generating assets may require careful analysis to determine whether the relevant ECB proceeds are being deployed towards permitted development activity or, in substance, towards restricted real estate monetisation.

Practical Implications for ECB Structuring and Documentation

The revised framework is likely to materially influence financing documentation, utilisation monitoring mechanisms and lender diligence processes in development linked ECB transactions. From a transaction structuring perspective, lenders and authorised dealer banks are likely to place increased emphasis on end use analysis, project classification, compliance with borrowing limits, security conditions and utilisation controls to ensure that the underlying transaction does not indirectly facilitate restricted real estate activity.

Accordingly, ECB financing documents may increasingly include detailed end use undertakings, project specific utilisation covenants, milestone linked drawdown conditions, enhanced reporting obligations, restrictions on diversion or onward deployment of proceeds, and certifications relating to, inter alia, ECB limit and security compliance. In secured ECB transactions, lenders are also likely to seek specific undertakings relating to existing lender consents, maintenance of security, enforcement limitations and compliance with the applicable guarantee framework.

The revised framework is also likely to increase the importance of diligence relating to project approvals, land status, existing encumbrances, development timelines, monetisation structures, collateral packages and regulatory classification of the underlying activity. In practice, the effectiveness of the ECB Amendment for development linked real estate financings will depend on careful transaction structuring, clear end use mapping, robust security documentation and ongoing compliance monitoring throughout the life of the borrowing.

Real Estate under the Revised ECB Framework: A Shift Towards Development Oriented Financing