Expected Regulation Would Encourage Foreign Investment In India

A three year lock in period for developers and foreign investors in the real estate market in India is expected to be scrapped.

The Department of Industrial Policy and Promotion and the Ministry of Commerce and Industry have put forward proposals to get rid of the statutory condition.

Developers and investors have long been critical of the policy saying that it is stifling investment.

Currently foreign investment in housing is subject to certain rules covering capitalization norms and the minimum area to be developed. But it is the fact that the original investment cannot be repatriated for three years from completion that is stifling investment, critics claim.

The government has indicated that it is keen to liberalize the Foreign Direct Investment regime in India.

‘The original restrictions on repatriation were a cautionary measure intended to prevent speculative investments in the real estate sector,’ one official said.

‘However, this sector has been feeling the pressures of the global economic crisis and has desperately been in need of greater capital and liquidity to fund its existing projects and growth,’ he added.

It is considered that a change will boost the real estate sector in India but also create jobs and greater domestic economic activity.

But there are some concerns that the proposed relaxation will result in a fluctuation of realty stocks and thus lead to market volatility.

But supporters say that less restrictions on foreign investments will help the economy overall.

Meanwhile developers in India are relieved that they do not have a lot of links with debt hit Dubai.

DLF, India’s largest real estate company, said plans to enter the Dubai market have now been postponed. ‘Luckily for us the one deal for which we were negotiating fell through,’ said DLF executive director Rajeev Talwar.

DLF was close to finalizing a joint venture with the now troubled Nakheel whose parent company Dubai World is trying to postpone debt payments while it restructures its finances.

Developer Omaxe, which has paid the first installment for buying land for two residential projects in Dubai, is considering pulling out.

‘There has been a slowdown in the Dubai real estate market.

Looking at the current situation, we are considering exiting the two projects,’ said chairman and managing director Rohtas Goel.