Three-year lock-in for FDI in realty ‘not restrictive’

Published: September 17, 2010

The Commerce and Industry Minister, Mr Anand Sharma, said on Thursday that the three-year lock-in period for Foreign Direct Investment (FDI) in the real estate sector is not “too restrictive.”

The comments assume significance as the real estate industry has long been asking for the dilution of FDI lock-in clause.

“I do not see the three-year lock-in period as being too restrictive….The investors must come with in with confidence,” the Minister said, addressing a real estate summit organised by FICCI.

Many in the industry have been demanding that the three-year lock-in stipulation for repatriation of foreign investments in SPV projects, be done away with as it deters foreign investors.

A recent study by FICCI-Ernst & Young has also made a case for permitting an early exit with prior Foreign Investment Promotion Board (FIPB) approval in instances where the project is completed; where a dispute arises between the resident and the non-resident, and the non-resident wishes to exit the project; or where the project could not be initiated due to lack of statutory clearances.

“Also, the Government should clarify whether the three-year lock-in period is for minimum capitalisation amount of the entire investment sum,” the report said.

At present, India allows up to 100 per cent FDI on the automatic route for townships, housing, built-up infrastructure and construction-development projects (including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure).

This is, however, subject to certain conditions. For instance, the minimum area to be developed under each project in case of serviced plots is 10 hectares; and for construction development at 50,000 square metres (built-up space).

In addition, there is a minimum capitalisation requirement of $10 million for a wholly-owned subsidiary, and $5 million for joint ventures.

Although there is a blanket lock-in period stipulated for repatriation, investors are allowed to exit in specific cases with prior permission of the FIPB. However, such approvals have been rare.

Incidentally, this is not the first time that the issue of three-year lock-in period has come up.

In 2009, the Department of Industrial Policy and Promotion had considered a proposal to do away with the lock-in condition and had even sought the views of Ministries of Urban Development, Housing and Finance, on the issue.

However, there is no clarity on the fate of that particular proposal.

Source:The Hindu Business Line

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