Foreign investment route in realty being abused: Parekh

Mumbai, May 30 | Updated: May 31 2007, 08:22am hrs
Housing Development Finance Corporation (HDFC) chairman Deepak Parekh has raised serious doubts over the dubious manner in which foreign investments are coming into Indian real estate projects.

Parekh said though the policy to allow 100% foreign direct investment (FDI) in real estate projects was taken with positive intentions, it is not as simple as it is made out to be. Several companies not willing to meet these FDI project conditions have resorted to the foreign institutional investor (FII) route to bring in foreign investment, said Parekh in the chairmans note in the HDFC annual report for FY07.

According to Parekh, some FIIs invested in real estate IPOs or bought shares in the secondary market in non-FDI compliant projects, thereby circumventing the minimum lock-in period. The regulators have now rightfully attempted to plug this loophole, he said. The story gets complicated as we look at other sources of foreign capital, said Parekh.

While FDI guidelines are meant for long-term foreign equity markets investors, there are numerous instances of investments in real estate being routed through mezzanine structures. This is debt masquerading as equity, he pointed out.