Problem With FDI In Real Estate

Before the globally-popular real estate mutual funds (REMF) take off here, RBI has raised a red flag. It has argued that the funds would lead to circumvention of foreign direct investment (FDI) in real estate that places limitations on foreign investors.
The central bank has shot off a letter to the finance ministry pointing out that REMFs allowed foreign institutions to invest that would lead to indirect FDI in the real estate sector. The foreign investment coming through REMFs would not face the restrictions that are applicable to FDI in real estate: a three-year lock-in, minimum capitalization of $5 million for a wholly-owned subsidiary and $10 million for joint ventures, and development of at least 10 hectares.
Although 100% FDI is allowed in realty projects on the automatic route, the conditions have to be adhered to. The banking regulator has said it amounted to indirect flow of FDI in violation of the spirit of the conditions laid down by the government. RBI now wants the government to take up the issue with market regulator Sebi which had issued the guidelines on REMFs about two months ago.
As per the Sebi guidelines, REMFs can directly invest in real estate, in mortgage-backed securities, securities of companies engaged in dealing in real estate assets or in undertaking real estate development projects and other securities. However, it has mandated that at least 35% of net assets of the scheme should be invested directly in realty assets. The much-awaited scheme has not found takers but some fund houses are working on the scheme.
RBI’s concerns about flow of foreign investment in realty are not new. It had earlier written to the government to make Foreign Investment Promotion Board’s clearance mandatory for FDI into the sector.

This entry was written by admin, posted on July 14, 2008 at 6:05 am, filed under Real Estate News and tagged , , , , , , , , , , , , . Bookmark the permalink. Follow any comments here with the RSS feed for this post. Trackbacks are closed, but you can post a comment.

One Comment

  1. Neeraj
    Posted July 19, 2008 at 2:32 am | Permalink

    Yes,there are lot of issues in the FDI because the foreighn investors are at very large scale which is to be make the buildings at a large scale through which increased the prices of the Real estate sector rapidly.

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