Latest Property News on 'Foreign Direct Investment in India'

Foreign funds sneak into property business

Foreign debt, banned in real estate, is finding its way into property firms, as bankers and lawyers help builders cobble together new deals to raise money. Even though foreign loans, better known as external commercial borrowings (ECBs), are not permitted in construction, property firms have spotted a mechanism where the debt can be provided by foreign institutional investors (FIIs) registered with Sebi. No rules are broken and the deals, involving a three-way transaction, come across as normal private placements in the corporate bond market. It begins with a real estate company placing non-convertible debentures (NCDs) with a local entity like a non-banking finance company (NBFC) to borrow.

The next step involves listing the debt security, soon after which an FII steps in. Once the NCD is listed in the stock exchange, the NBFC offloads the paper to a foreign fund. Since FIIs cannot invest in unlisted debt, the NBFC warehouses the NCD till the paper is listed and then recovers the money by selling the debentures to a foreign fund. The two transactions are parts of a back-to-back deal struck among the NCD-issuing firm, the local NBFC and an FII. At least four developers, three from Mumbai and one from Bangalore, have raised over Rs 1,000 crore in the past few months through this route. Read More »

Global Financial Crisis Keep Foreign investors Away from Realty, Construction Sectors

Foreign investors have remained bullish on India’s housing, real estate and construction sectors in the last two years, undaunted by scarce global financial resources. Foreign Direct Investment (FDI) in terms of inflows into equity in the Indian construction and realty sectors have seen a sharp rise from USD 1.19 billion in April-December 2007 to USD 5.6 billion in the first three quarters of the current fiscal, as per the official data.

In March 2005, the government had liberlaised the foreign investment norms with a view to catalysing investment in the realty sector. The government allows 100 per cent FDI through automatic route in construction development projects, including housing, resorts, commercial premises, educational institutions, recreational facilities, city and regional level infrastructure and townships. Though the FDI norms were liberalised in 2005, the government had imposed certain conditions like a lock-in period on repatriation of investment for three years. The repatriation could only be allowed with permission of Foreign Investment Promotion Board. Read More »

Govt Doubles Ceiling on Automatic Foreign Investment

A month and a half before the unveiling of India’s consolidated foreign investment policy, the government on Thursday doubled the ceiling on automatic foreign investment from Rs 600 crore to Rs 1,200 crore. Union commerce minister Anand Sharma, who announced the decision, said the move is expected to make India a more attractive destination for long-term investment. Under the current rules, long-term investments into most Indian sectors are ‘red-tape free’, subject to a cap on the amount of money invested. “We have got a good response from companies and investors, both from India and abroad,” he said, referring to his Christmas-eve invitation for suggestions from the public on simplifying foreign investment policy.

Sharma also announced that existing investors need not seek the government’s nod for incremental investments in sectors where a fresh investor would not be required to do so. Similarly, a single no-objection certificate from business partners would be enough for all subsequent investments of a company into India, he said. For calculating the investment, the government will look at actual capital inflow rather than the projected cost of the project, he said. The simplifications are seen as the result of the feedback given by the industry on the complexities of the existing policy. Sharma had, in December last year, urged companies and investors to give their suggestions on simplification and consolidation of India’s foreign investment rules. Read More »

Foreign Investment in India

The news that in 2009 India produced more Dubai real estate buyers than any other country may not be a big surprise – but it does trigger the question: when will India reciprocate, and allow the rest of the world to easily buy a stake in its real estate? India’s role in Dubai is easy to explain. Firstly, India is an increasingly-wealthy location with plenty of trusts, consortia and individuals wanting to invest, and their demand has always been for high quality and often landmark projects.

Secondly, other markets with long histories of buying in Dubai (chiefly the UK, which produced the second largest group of investors last year) have been hit by their own recessions and credit restrictions. More surprising is that Pakistan and Iran should come third and fourth in terms of nationalities of investors in Dubai. As it stands, a foreign national of non-Indian origin who is resident outside of India cannot buy any ‘immovable property’ (that is, real estate) in India. To be eligible they must be resident for 183 days in a financial year. This figure was chosen as it exceeds the duration of a tourist visa, which is 180 days – and which, incidentally, specifically states you are now allowed to purchase property while in the country under its jurisdiction. Read More »

Finance Ministry Rejects Proposal to drop FDI Realty lock-in

The finance ministry has rejected a proposal by the Department of Industrial Policy and Promotion (DIPP) that had suggested dropping the mandatory three-year lock-in for foreign direct investment in the real estate sector, affecting the prospects of the sector raising funds from overseas. The finance ministry has rejected the proposal from DIPP seeking to remove this (lock-in on FDI) clause, a government official confirmed.

Responding to a draft cabinet note circulated by DIPP in November 2009, the ministry said the lock-in acted as a deterrent, checking speculation and shielding the sector from sudden flight of capital in the time of crisis, such as the global meltdown in 2008 when foreign institutional investors pulled out nearly $5 billion from equity investments between September and October. Read More »

Bangladesh PM Seeking Investment from Indian INCs

Bangladesh Prime Minister Sheikh Hasina is likely to seek investments from India in a host of sectors like power and telecom during her interaction with top Indian business leaders here on Tuesday. India’s business chambers - FICCI, CII and Assocham - would be hosting a luncheon meeting for Hasina and flag issues for enhancing economic cooperation. Hasina, accompanied by business delegation of over 40 people, is arriving here on a day-long visit. While trade has been increasing between the countries over the last several decades, it is only now that the two nations are seeking opportunities for FDI in setting up new plants or through mergers and acquisitions.

Bharti Group, which owns India’s largest mobile telephony brand - Airtel -, is in advanced stage of discussion to buy 70 per cent stake in Warid, a telecom firm of Bangladesh. NTPC, India’s largest power generating firm is also keen to set up joint ventures in Bangladesh. “There is a huge potential for Indian entrepreneurs to invest in Bangladesh,” FICCI said adding “FDI from India to the neighbouring country could increase to USD 1.2 billion in 2012 from the current USD 438 million.” Read More »

FDI India 2009 Hit by global Financial Crisis

The global financial crisis that spilled over into its second year choked flow of foreign direct investments into India in 2009, forcing the government to loosen rules for investments but it kept multi—brand retail off—limits to foreigners. In the first nine months of 2009, FDI dipped by 26 per cent to $21.4 billion from $29 billion a year ago. The total FDI inflow into India since 2001 crossed the $100 billion mark.

Although fund inflow was few and far between, FDI became the cause of confusion over ownership of seven Indian lending institutions, including ICICI Bank and HDFC Ltd. But the banks have maintained that they are Indian as they are controlled by Indian banking regulations, Indian Board and Management. While the Centre simplified norms aimed at attracting more FDI, it has yet to get the Insurance Bill approved by Parliament. Read More »

DIPP Sets Monitoring Cell to Scan End-Use of FDI Raised by Realty Firms

The department of industrial policy & promotion (DIPP) has set up a monitoring cell to investigate the end-use of foreign funds raised by realty firms, according to official sources. Its objective: to ascertain whether companies diverted the money to areas where FDI is banned like buying agricultural land. The development comes at a time when the government is trying to relax the three-year lock-in period on repatriation of investments by foreign partners in real estate projects.

The decision comes after recent raids by the enforcement directorate (ED) on one prominent Delhi-based real estate developer revealed “large-scale” FDI violations in the purchase of land. The company had an around 12,800-acre land bank, of which 8,700 acre is agricultural land. The ED claimed that most of this farmland was acquired through FDI, in contravention of existing rules. Read More »

Govt Approves Rs 4,551-cr FDI Proposals

The government has approved 17 foreign direct investment (FDI) proposals worth Rs 4,551 crore, including that of the Federal Agency for State Property Management of the Russian Federation to buy 20 per cent stake in telecom service provider Sistema-Shyam for Rs 3,051 crore.

PepsiCo’s proposal for infusion of Rs 928-crore equity into its Indian subsidiary has been referred to the Cabinet Committee on Economic Affairs (CCEA), since all proposals involving more than Rs 600-crore FDI have to be referred to CCEA. The proposal of France-based Alstom Power Holdings’, Alstom Power and Switzerland-based Alstom Technology to establish two joint venture companies in India, with 51 per cent equity in one company and 49 per cent in another, has also been referred to CCEA. Read More »

FDI in Real Estate May Get Rid of Three Year Lock-in Period

Foreign investment in the real estate sector may potentially no longer be subject to the statutory three year lock-in period. It is believed that the department of industrial policy & promotion, ministry of commerce & industry, recently circulated a draft note for consideration of the Cabinet Committee on Economic Affairs, where it has proposed to remove the condition of minimum period for repatriation of the original foreign investment.

Under FDI policy as on date, 100% foreign investment, without government approval (automatic route), is permitted in townships, housing, built-up infrastructure and construction-development projects. Regulated by Press Note 2 (2005), these investments are subject to certain minimum capitalisation norms and conditions prescribing the minimum area to be developed. Press Note 2 also stipulates that the original investment cannot be repatriated before a period of three years from completion of the minimum capitalisation, except with prior government approval. It is pertinent to highlight that investments in SEZs, hotels and hospitals are exempt from all, including inter alia, the investment conditions, as stipulated in Press Note 2. Read More »