The government has decided not to allow foreign direct investment (FDI) in real estate consultancy firms, given the perception that this route is used as a conduit for investing in real estate. The Foreign Investment Promotion Board (FIPB) has articulated this view, while rejecting a proposal by the French consultancy firm AOS Studley Group for starting real estate consultancy services through a subsidiary.
?The Department of Industrial Policy and Promotion (DIPP) does not support any proposal (for FDI in real estate) even if that is in the area of consultancy,? the FIPB said.
The board has also stated that no future proposal for FDI in real estate consultancy will be entertained. FDI is barred in real estate companies. The DIPP is the nodal agency for FDI policymaking. However, it is not clear whether the new measure will impact global real estate consultancy firms such as CB Richard Ellis, Jones Lang La Salle, Knight Frank and Cushman and Wakefield, which are currently offering advisory services in the country. The clarity on whether the rule will be applicable on existing firms is expected in March next year when the FDI policy is up for half-yearly review.
Reflecting the concern of global real estate consultancy firms, Jones Lang LaSalle country head Anuj Puri said, ?As on date, the advisory services business is a R1,000-crore industry. It would be a retrograde step on the part of the government if the ban applies retrospectively.?
Angshuman Magazine, head of the Indian subsidiary of US-based CB Richard Ellis, said, ?We are only present in service entities and not into developing or building and construction-related areas. Therefore, the government’s new move would impact our business in India apart from eventually hitting the overall realty business.?
The FDI ban has been mooted by the DIPP because it feels that real estate consultancy firms may get into buying and selling properties through the backdoor.
The current policy prohibits FDI in real estate companies but allows 100% foreign investment in projects of the real estate firms, such as construction and housing development subject to riders.
AOS had sought government nod for undertaking valuation, intermediating and appraisal services in real estate assets in India apart from project and facilities management services for its clients.