The government is prescribing tighter rules for foreign direct investment (FDI) in real estate which will bar a foreign company from repatriating funds even after the mandatory three-year lock-in period in an Indian company. The new norms will make it mandatory for foreign companies to complete at least 50% of the project within five years from the date of project conception.
The finance ministry recently rejected two such proposals of international builders wishing to exit Indian operations after fulfilling the condition of mandatory three-year lock-in, though it failed to honour criterion of minimum project completion. The DIPP is framing new rules regarding the same, government sources said.
This comes after the department of economic affairs, under the finance ministry, asked the department of industrial policy and promotion (DIPP) to clearly spell out the modalities in the FDI policy clearly linking all the conditions governing FDI in real estate.
Last month, the foreign investment promotion board (FIPB) ? the nodal agency for clearing FDI proposals ? rejected a proposal of a clutch of private equities invested in a Pune-based realty company Kakade British Realties , who had asked for repatriation of capital after 3 years but had not adhered to the minimum construction norm in the project. Another proposal of Bangalore-based Aquea Realty was also turned down by FIPB last month on similar grounds. The government has noted that in both the proposals there is a policy confusion on linking of conditions and riders in the FDI policy in real estate. The government now wants to address this aspect at the earliest.
The finance ministry has observed that according to the FDI policy, at least 50% of the project must be developed within a period of five years from the date of obtaining statutory clearances. The investor or the investee is not permitted by the rule to sell underdeveloped plots. However, the policy is silent on the implication of non-compliance. Hence the finance ministry is of the view that minimum lock-in period and time-bound progress of the project needed to be clearly reconciled.
