Dipp cell to keep vigil on FDI in real estate projects

Dipp cell to keep vigil on FDI in real estate projects
The Economic Times, February 4, 2009, Page 7

Move To Ensure Funds Are Not Diverted To Projects Not Meeting FDI Norms

Rajat Guha NEW DELHI

THE department of industrial policy and promotion (Dipp) will set up a monitoring cell to track foreign direct investment inflows into real estate companies to ensure the funds are not diverted to projects for which foreign investment clearance has not been taken, said a senior official with the department.

Real estate companies need to take government permission to induct foreign capital through joint ventures or special purpose vehicles. The proposed cell will ensure that cleared funds are not diverted to other projects in violation of the FDI policy.

The department has observed that many Indian companies divert foreign funds into projects not cleared for foreign investment.

If real estate companies are allowed to retain their non-FDI projects while bringing in foreign funds, it would actually mean they are being exempted from Press Note 2 of 2005 guidelines that lays down the minimum capital and area norms for projects eligible for accepting foreign capital. There is also a three-year lockin period for such ventures. This would be a violation of the FDI policy.

The foreign investment promotion board (FIPB), the government body that clears foreign investment, is of the view that foreign investments should be monitored after they have been approved. The modalities of the monitoring mechanism are being worked out by Dipp.

“The Dipp may ask realty companies to submit bi-yearly financial reports so that fund flow could be scrutinised. The process would continue so long as the project is not completed,” an FIPB official said.

The FIPB had rejected an application from Vatika, a Delhi-based real estate company, seeking to retain projects that do not comply with FDI guidelines for the real estate sector.

US-based Wachovia Corp has invested in Vatika through its subsidiary WDC Ventures. According to the Vatika proposal, funds from WDC Ventures would be exclusively used for developing projects within the parameters of FDI rules. However, Vatika had some projects before accepting FDI which it wanted to retain.

India received $4.5 billion FDI in housing and real estate sector from April 2000 to October 2008. Of this, about $1.8 billion was received during April-October 2008 alone, according to data available with Dipp.

Realty cos need to take govt nod to induct foreign capital through joint ventures or special purpose vehicles
Dipp has observed many companies divert foreign funds into projects not cleared for foreign investment
FIPB feels foreign investments should be monitored after they get clearance