Govt reviewing pre-IPO placements of real estate firms

                                                                                         

The government is having a relook at the policy governing the pre-initial public offer sale of shares by real estate companies to foreign investors.

“The department of economic affairs and department of industrial policy and promotion have come around to the view that the pre-IPO sale of shares by real estate companies should be given the status of FII investment,” sources said.

The Reserve Bank of India is still to be taken on board as it is sticking to its earlier stand that pre-IPO placement must be treated as foreign directinvestment (FDI) as it is made by the promoter at his discretion.

The central bank has argued that Foreign Exchange Management Act (FEMA) needs to be amended if FDI in real estate has to be given the status of portfolio investment.

Real estate companies, which want to encash on the boom in the sector, have been seeking FII status for their pre-offer placements as many of their existing projects do not meet the tough FDI norms.

The change in classification would provide relief to many of the real-estate companies who have lined up IPOs. According to the earlier norms, the funds raised by the real estate companies from foreign financial institutions would have been classified as foreign direct investment.

To qualify for FDI, all the projects should comply with the regulations as far as size is concerned. FDI is currently allowed only in projects spread over 10 hectares and the minimum investment should be above five million dollars.

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Source: IndiaRealEstateblog

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