The differences between the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have stalled foreign venture capital real estate funds from setting up shop in India. The RBI is insisting that funds floated by foreign venture capital investors (FVCIs) be brought on a par with real estate funds coming through the foreign direct investment (FDI) route for regulatory purposes.
At present, the FDI in the real estate sector is permitted through the automatic route and does not require the Foreign Investment Promotion Board (FIPB) nod. But fund houses have to adhere to certain project and financial restrictions.
The rules governing venture financing are liberal and allow funds to park money and withdraw it at their will. But financial conditions governing FDI rules require these funds to stay here for a minimum three years. Repatriation of any of the initial investment by funds before the stipulated period requires FIPB approval. The project conditions governing FDI rules prohibit sale of undeveloped land – a developer may purchase undeveloped land but must develop it before selling it. Also, it states that at least 50% of the project must be completed within five years from the date of obtaining statutory clearances.
Nearly 20 FVCI applications to invest in the Indian real estate sector are pending with the RBI, but have been approved by SEBI. Investments in the pipeline are estimated to be worth around $2 bn.
Article in The Financial Express.
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