DIPP to scan FDI end-use in realty

DIPP to scan FDI end-use in realty
The Financial Express, December 18, 2009, Page 1

Rajat Guha, New Delhi

The department of industrial policy & promotion (DIPP) has set up a monitoring cell to investigate the end-use of foreign funds raised by realty firms, according to official sources. Its objective: to ascertain whether companies diverted the money to areas where FDI is banned like buying agricultural land. The development comes at a time when the government is trying to relax the three-year lock-in period on repatriation of investments by foreign partners in real estate projects.

The decision comes after recent raids by the enforcement directorate (ED) on one prominent Delhi-based real estate developer revealed “large-scale” FDI violations in the purchase of land. The company had an around 12,800-acre land bank, of which 8,700 acre is agricultural land. The ED claimed that most of this farmland was acquired through FDI, in contravention of existing rules.

Under current regulations, FDI is banned in agriculture and agriculture-related activities. However, 100% FDI is allowed for integrated townships and housing development projects. According to official sources, certain developers could be using funds raised through FDI to buy agricultural land for their projects, although the law does not permit this. Existing regulations also do not provide for the purchase or sale of undeveloped land for which FDI approval has been granted. Such land must be retained by the developer.

Officials said DIPP would now ask realty firms to submit quarterly reports on the end-use of foreign funds to ensure that the funds are not being routed to projects other than FDI-compliant ones.

Last year, the Foreign Investment Promotion Board, the nodal foreign investment approval body, had rejected an application from Vatika—Wachovia Corp of the US through subsidiary WDC Venture has invested in the Delhi-based developer—seeking to retain projects that do not comply with FDI guidelines in the real estate sector.

In another case, FIPB rejected a proposal by Keppel-Puravankara Development Pvt Ltd--in which Singapore-based Keppel Land Ltd holds 51%—which wanted to sell 1.5 acre of undeveloped land from a 62-acre tract acquired to develop an integrated township in Bangalore.