The Reserve Bank of India?s (RBI) effort to restrict the flow of funds into the real estate sector and the Centre?s budgetary measures, specifying nine areas for venture capital investors to get tax incentives on investments, seems to pay desired result.
In the first six months of calendar year 07, domestic venture capital investors (VCF) and foreign venture capital investors (FVCI), registered with the Securities and Exchange Board of India (Sebi), have reduced their exposure in the domestic realty sector by Rs 726 crore and Rs 542 crore, respectively.
On the other hand, their focus of investment has shifted to s services sector, IT, telecommunication, biotechnology, media & entertainment, textile, power and infrastructure.
The real estate sector had been one of the prime areas of investment by venture capital investors till recently. Until December 2006, the sector had attracted investment worth Rs 2,626 crore and Rs 1,430 crore from Sebi-registered domestic VCF and FVCI.
K Sreenivas, managing partner, BTS Investment Advisors, said, ?The restriction and regulation that are coming in place in the real estate sector is having a dampening effect on the institutional investment in the sector. Now, the venture capital investment in real estate is going through a learning curve and will have to adjust according to the localised and regulatory aspects prevailing in the sector.?
To stop the misuse of venture capital investment route, the government, in its Budget for 2007-08 specified certain areas such as IT, Biotechnology, seed research and nano-technology, among others to get the status of tax pass through entity for VCFs. This had prompted Sebi-registered VCF and FVCI to shift investment preference.