Foreign players in the real estate business will soon have a reason to cheer. The department of industrial policy and promotion (DIPP) is considering a proposal which seeks to enable foreign players repatriate profits from their investments in the country save the ?original investment?, which is $5 million. This means that the minimum lock-in period for foreign direct investment in real estate, which bars repatriation of profits, would only apply to the stipulated original investment, which is pegged at $5 million. Any amount invested over this can be repatriated.
Sources said the DIPP would reverse its earlier notification issued last year, which had termed original investment as the ?entire investment? brought in by the foreign player in a project.
According to the foreign direct investment (FDI) regulations, a foreign investor has to bring in a minimum $5 million to participate in a joint venture (JV) with an Indian developer while the rest of the money can be brought in later, in tranches. The rule says, ?Original investment cannot be repatriated before a period of three years from completion of minimum capitalisation”. Till now, the interpretation has been that the three-year lock-in applies only to the ?original? or ?minimum? investment of $5 million and not to the entire money that the foreign investor puts in. For instance, if a foreign fund invests $500 million, the interpretation has been that it can recover and repatriate up to $495 million before three years while the balance $5 million can be repatriated only after three years. However, last year, the department issued a notification saying original investment would apply to entire investments brought into the project, a move that was enough to wean them away from the Indian market and dampen their plans in India.
?The change will not warrant any tweak in the policy but a mere notification,? a DIPP official said. ?If the government maintains the spirit of the original Press Note and allows foreign players continue investing in the way they ave been doing for the last five years, it would reinstate their confidence in the real estate sector. At a time, when realty sector is reviving in India, the proposed move may instill their confidence in the realty sector,? said Delhi-based realty firm Ansal API marketing and brand head, James Mathew.
The change in the government’s stance comes after the real estate industry convined it for such a step. At least top five law firms of the country representing their foreign clients have been having meetings with the government for last one year for bringing this change.
Apart from extending this succour to foreign players in Indian real estate, the DIPP has also proposed to bring down the minimum area requirement of 10 hectares for development of townships in India. The proposal to this effect has been sent to the Cabinet for approval.
According to the data released by the DIPP, the housing and real estate sector, including cineplexes, multiplexes, integrated townships and commercial complexes, attracted a cumulative FDI worth $8.4 billion from April 2000 to March 2010 wherein the real estate and the housing sector witnessed FDI amounting $2.8 billion in the fiscal 2009-10.