FDI lock-in norm change may cheer local realty cos

MUMBAI: Hectic lobbying is under way to bring about a small change in the way one interprets a rule on foreign investment in property — a change that could backfire on overseas investors rescue several Indian realtors.

It will not require a Cabinet decision or a new press note issuance by the government. All it will call for is a simple clarification — one that could make or break many players in the local property market that has attracted close to $20 billion in the past five years.

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 be brought in at a later point, may be in tranches. Interestingly, the March 2005 press note 2, which spells out FDI rules, 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 $100 million, the interpretation has been that it can recover and repatriate up to $95 million before three years while the balance $5 million can be repatriated only after three years. But not any more, something the government will soon specify.