20 FVCI realty plans stalled by RBI

Alarmed by the foreign funds flowing into the Indian realty sector, the Reserve Bank of India (RBI) has pressed the panic button and is believed to have put on hold applications of nearly 20 foreign venture capital investors (FVCIs). These intend to invest an estimated $2 billion (around Rs 9,000 crore) in the domestic real estate sector. Some of the funds whose applications are pending with the RBI are: TS Mauritius, India Property Fund Mauritius, India Real Estate Fund Ltd, Primary Real Estate Investments Ltd etc. Interestingly, all the applicants have prefered to enter Indian real estate sector through Mauritius. Applications of nearly 20 FVCIs, which intend to purely invest in real estate India, have been cleared by the Securities and Exchange Board Of India (Sebi). Interestingly, RBI has already cleared around three applications approved by Sebi in the second half of 2005. These are: Dynamic India Fund III, Dynamic India Fund IV and Ascendas Property PTE Ltd. When contacted, senior Sebi officials declined to comment on the matter. But an informed source said, since it involves foreign money, it is the RBI which has to give the final approval. The total investment by such funds in the real estate sector in 2006 was registered at more than Rs 2,000 crore. RBI is concerned that if fresh applications are approved, it would add to the bubble in the sector and would encourage more such funds to come in. As per recent notification by Commerce Ministry, Foreign Direct Investment(FDI) in the real estate sector is now permitted through “automatic route”, ie., without requiring the additional approval of the Foreign Investment Promotion Board (FIPB). In spite of this, many foreign players are coming through the venture capital route because of the liberal rules and regulations governing the venture capital funds in India. As per domestic rules, venture capitalists enjoy parking their money anytime and their subsequent withdrawal at their will, which is otherwise not possible through the FDI route. Source: financial express