NRI Real Estate and Property Investment in India
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3 Year Lock-In For Foreign Investment in Real Estate
Monday, March 30, 2009

Foreign investors in Indian real estate cannot sell their stakes to another foreign investor before three years, the Foreign Investment Promotion Board (FIPB), the body that clears such proposals, has said. With this, FIPB has overruled a provision in FDI policy that exempts foreign players from the rule in cases where fund transfer is from one non-resident to another. Till now, this three-year lock-in was applicable only on foreign investment in real estate and not on investors.

The FIPB view is contrary to the stand taken by the department of industrial policy and promotion (Dipp), the nodal agency that formulates FDI rules in the country. Dipp’s view is that a foreign investor can repatriate funds if it offloads its stake to another foreign investor as the actual investment in a project would remain intact and only its ownership would change. “Though Press Note 2 of 2005 has an enabling clause to permit sale of investment between two non-residents before the end of lock in, it has not been allowed so far,” an official in the commerce & industry ministry said.

The issue came up in the last FIPB meeting, when the board took up private equity fund 2I Capital’s request to sell its investment in Delhi-based real estate firm Uppal Housing to Mauritius-based fund ICP Investments. The company had sought approval for transferring 1.9 crore shares in the Indian real estate company to the Mauritian company. According to the company’s proposal, the fund transfer involved no repatriation of funds but physical transfer of shares from one investor to another.

Though Dipp had recommended giving permission for sale of 2I Capital’s shares to ICP Investments, FIPB rejected it. Dipp argued the sale of shares was permissible between two non-residents within the lock-in period , but FIPB rejected it. In a missive to FIPB, ICP Investments said it has already invested $45 million in Uppal Housing and has plans to make substantial investments. However, if 2I Capital is not permitted to transfer its shares to ICP, Uppal Housing’s projects may be jeopardised, the company has stated. The joint venture between Uppal Housing and 2I Capital has been terminated and the company still holds its shares, given the policy logjam.



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