NRI Real Estate and Property Investment in India
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More Fdi Expected in Indian Realty
Saturday, March 29, 2008

A move is afoot within the government to liberalize the norms for foreign direct investment (FDI) in real estate. The department of industrial policy and promotion (DIPP) has circulated a Cabinet note proposing waiver of two conditions-the three-year lock-in on foreign investment and the minimum investment criteria of $5 million for joint ventures or $10 million for wholly-owned ventures.

The waiver has been sought for real estate projects, including hotels, according to a government official. The proposal has been justified on the ground that it would boost tourism and hospitality, sectors identified by the government as vital job creators.

At present, 100% FDI is permitted in hotels and tourism as well as real estate. However, realty FDI faces a three-year lock-in-the investor cannot sell his stake during this period. If one wishes to exit before three years, one will have to take the permission of the Foreign Investment Promotion Board (FIPB).

There are also the stipulations for development of at least 10 hectares of land, and completion of at least 50% of the scheduled construction in five years of obtaining all statutory clearances, in addition to the minimum capitalization norm mentioned above. These conditions do not apply to the hospitality sector.

The proposal, however, may not go down well with RBI and the finance ministry. In fact, RBI wants curbs imposed on FDI in real estate and had written to the finance ministry asking it to make FIPB approval mandatory for foreign investment in the sector. At present, FDI in real estate is via the automatic route.

Moreover, DIPP's move to exempt pre-IPO foreign investment from the three-year lock-in had faced stiff resistance from both RBI and the finance ministry. The proposal, which was a part of an overall FDI review, was not cleared by the Cabinet. DIPP is planning to take the proposal again to the Cabinet. RBI's concern over an asset bubble stems from the fact that real estate has witnessed huge inflows ever since it was opened up in February 2005, leading to a manifold increase in property prices.





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