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- RBI Denies FII Status to FDI in Booming Realty
The Reserve Bank of India has denied granting FII status to foreign direct investments received through private placement of equity by different construction companies. This is taken as a step to keep a check over the asset bubble in fast flourishing realty stocks.
RBI does not want to take a big leap at any risks whatsoever. It is no mood to allow any relaxation for FDI brought in through private placement by real estate developers, whose projects are not in fulfillment with the guidelines of department of industrial policy and promotion (DIPP).
Real estate biggies are always in a look out to make a killing on growing interest of potential investors for realty sector stocks. This is what encourages them to seek FII status for their pre-offer placements to encash on these prospects further.
DIPP has been seeking views of Finance Ministry on the market sensitive subject as RBI appears to be taking a tough stand from now onwards. As opposed to the reports, the government has no aim to relax FDI norms for the sector, say officials.
Every real estate company is required to meet the guidelines of its projects before having FDI. A majority of developers see this rule as the biggest hurdle in their way that prevent them to leverage their existing projects for foreign investment.
RBI has taken a decision that no private placement will be treated at par with the portfolio investment since these companies involve discretion of the promoters of a company.
Additional Data:The total inflow of FDI into the country in January-October, 2006 stood at $7.9 billion, up 143% from $3.2 billion in the same period in 2005. Top foreign investors in the realty include Blackstone Group, Goldman Sachs, Emmar Properties, Pegasus Realty, Citigroup Property Investors, Lee Kim Tah Holdings, Salim group, Morgan Stanley and GE Commercial Finance Real Estate.
The government fully opened FDI in real estate in 2005. However, norms issued later made a minimum capitalisation of $10 million for wholly-owned subsidiaries and $5 million for joint ventures mandatory. The government also imposed a minimum area requirement. According to a recent study by Associated Chambers of Commerce and Industry of India on the future of real estate investment in India, FDI’s share in the domestic real estate market will increase to 26% by March 2007 from 16% in fiscal 2005-06.
The sector is expected to touch $60 billion by 2010 from the current market of $15 billion.
As such FDI in India is really riding growth waves but will that be an ongoing process in future with RBI bringing about more and more stringent rules and regulations?CommentQuote0Flag