Non Resident Indians (NRIs) are bullish on to make large scale real estate investments in India although owing to new rules to be imposed on them. Experts believe Indian real estate to be overheated, a fact which has led the government to impose a lock-in measure on NRIs in a look out for the prospects to invest in realty companies ready to issue IPOs. The proposed measure may strengthen the foundations of the real estate business and ensure lasting safety of the money pumped into it. Also, the government is planning to introduce a three year lock-in period for NRIs investments in real estate projects prior to an IPO. At present, the regulation is meant only for foreign institutional investors (FIIs). Prospective investments in IPOs of real estate companies and sudden withdrawal can result into real estate bubble and the government fears thereby leading to the creation of stringent rules and regulations. The three year lock-in period on pre-IPO NRI investments would discourage the promoters from secretly sending the money through the NRI route, as is the practice of late. Accordingly, the Foreign Exchange Management Act (FEMA) would also be modified. Real estate companies planning IPO would have to take up the adjustments differently to meet the new directives which would be elaborated on shortly. At present, the norms allow 100 percent foreign direct investment (FDI) in real estate projects but with a three years lock-in period, a funding of a minimum of $5mn and development of 10 hectares of land. The norms apply to both NRI investments and foreign investments. However, the RBI has suggested imposing the same rule on shares allotted to foreign institutional investors (FII) in initial public offers (IPOs) by real estate companies. The government does not seem to agree with the same. Contrary to this, the RBI is learnt to be holding up clearance under FEMA for FIIs to make investments in IPOs. The excessive exposure of banks towards real estate companies can bring a step rise in property prices. The RBI has recommended that if the pre-IPO route carries a lock in period, the same stipulation should also be enforced for IPO allotments.
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