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Last month, the
government decided to stipulate a three-year lock-in for pre-IPO
allotments by real estate developers to FIIs, thus treating
these investments on a par with foreign direct investment (FDI).
FDI in real estate attracts an identical lock-in, ensuring that
these investors can sell only after three years, thereby curbing
speculative short-term capital inflows.
The Securities and Exchange Board of India (SEBI) is yet to
notify the lock-in for FIIs. The government has also banned use
of external commercial borrowings in real estate by withdrawing
the permission granted to companies developing integrated
townships.
The government, however, is not in favour of having a lock-in
for FII investments in real estate IPOs, as such investments are
treated as short-term portfolio investments.
The RBI, on the other hand, is learnt to be holding up clearance
under the Foreign Exchange Management Act (FEMA) for FIIs to
invest in IPOs of real estate companies, said sources close to
the development.
The ceiling for FII investment is 24 per cent but can be raised
up to the FDI limit, subject to permission. 100 per cent FDI is
allowed in development of integrated townships on at least 100
acres of land.
Sources said the RBI is of the view that in the absence of a
lock-in period, IPO allotments could provide an alternative
route for short-term investments by FIIs in a sector that has
already seen 50 to 100 per cent price increases in major cities
over the past two years.
The RBI fears that excessive foreign capital inflows could
inflate prices in the real estate sector further. The central
bank has suggested that if the pre-IPO route carries a lock-in
period, the same stipulation should be made applicable to IPO
allotments as well.
The RBI proposal does not refer to FII investments after shares
of real estate companies are listed. Some real estate firms
already have FII investments amounting to as much as 30 per cent
of their paid-up capital.
Coutesy: Business Standard |
Masala
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