Plan to remove lock-in period for FDI in realty

Plan to remove lock-in period for FDI in realty
The Financial Express, November 24, 2009, Page 3

fe Bureau, New Delhi

Foreign players can freely enter and exit the Indian real estate market now. The department of industrial policy and promotion (DIPP) — the nodal foreign investment policy-making body — has proposed the removal of the mandatory three-year lock-in for foreign direct investment (FDI) in real estate. The department has moved a draft Cabinet note to this effect for an inter-ministerial clearance.

The lock-in period was a cautionary move against speculative trading in the sector. The government had introduced a lock-in for foreign investment in realty companies in a bid to prevent a possible real estate bubble. The restrictions were also aimed at checking sudden flight of capital. By putting a lock-in period for foreign capital, the government had also effectively discouraged the promoters’ own funds coming into the company through the NRI route. A mandatory lock-in period has always acted as a deterrent for promoters bringing such funds through the NRI route.

The government is likely to amend the Foreign Exchange Management Act to exempt foreign players in Indian real estate from facing a mandatory lock-in clause. However, other conditions such as minimum capitalisation and area of development will remain unchanged.

At present, FDI up to 100% is allowed in realty projects on automatic route with certain conditions like a three-year lock-in on investments, minimum capitalisation of $5 million and development of at least 10 hectares of land. These conditions are applicable on all foreign investors, including NRIs. It is understood that the government has initiated the move keeping in view the fact that the sector is on its all-time ebb owing to the slowdown. The government has taken the step to enable foreign companies repatriate their money whenever they feel from the Indian venture.