Last one year?s real estate deals involving foreign investments have come under the scanner of the enforcement directorate (ED). The government and the investigators suspect that founder or primary companies based in the United States, EU and other countries sometimes exit investments in Indian real estate projects through the sale of Mauritius-based subsidiaries without any intimation to the Indian government. This amounts to a violation of the FDI policy where it is stipulated that foreign investors in Indian realty projects have to be locked in for a period of three years.
A case that has come to the notice of policymakers is that of Bahrain?s Taib Bank?s investment in a project owned by Delhi-based real estate firm Anant Raj Industries. Taib Bank picked up the stake through entities based in Cyprus and Mauritius, and then sold these arms before the lock-in period of three years was over. Acacia Real Estate, the Mauritius-based arm of Taib Bank, invested R225 crore in 2008 to pick up a 26% stake in a mall developed by Anant Raj Industries in Delhi. Taib Bank is the principal founding shareholder in Acacia.
?This is a violation of FDI rules as it amounts to having sold the investment within the lock-in period of three years. Such sale is against the intent of FDI policy,? a senior government official said on condition of anonymity.
?The PE funds were investing in Indian realty projects via the Mauritius route and structures were developed enabling them to exit before the end of lock-in period. This is against the spirit of the FDI policy set by the government. It is generally anticipated that the investments would now be closely scrutinised to check if any violations, directly or indirectly, were committed,? Samir Jasuja, founder and chief executive officer at PropEquity, a real estate data, analytics and intelligence firm said.
?Going forward, we expect any updates in the FDI policy on real estate would provide more clarity in the sector, which will help in bringing in transparency and accountability to the sector,? Jasuja added.
Besides circumventing the FDI policy, these foreign players have also avoided tax on capital gains by misusing tax treaties and setting up subsidiaries in tax havens to acquire Indian assets and selling them eventually.