Exit route likely for realty FDI in unviable projects

Recommendation made by urban development ministry in a review of FDI policy

Real estate companies will be allowed to sell undeveloped plots through the automatic route, subject to clearance by the Foreign Investment Promotion Board, in cases where development cannot happen because of land or legal disputes or other economic, social and political reasons.

This has been recommended by the ministry of urban development (MoUD) in a review of the foreign direct investment (FDI) policy for construction/development. The ministry’s note has been sent to the Department of Industrial Policy and Promotion, which administers FDI policies.

Currently, FDI regulations do not permit an investor or investee company to sell undeveloped plots. If approved, this will enable companies to exit unviable projects. However, the ministry has proposed that company needs to submit an auditor certificate, saying the transaction (land disposal) has been undertake on a no-profit basis under such exceptional circumstances.

Under the new proposal, the Indian company, or the recipient of FDI, will be responsible for obtaining all necessary approvals, including building/layout plans, developing internal and peripheral areas and other infrastructure facilities and complying with all other requirements as prescribed by regulations of the state government and the municipal or local body concerned. As against the current norm where the investor/investee company is responsible for obtaining the approvals, “the dual liability should be removed by keeping the liability at the Indian company level only”.

According to the MoUD, this will have a positive impact on the joint ventures to be set up by foreign investors. Besides, this will provide greater clarity to the foreign investor community and will make investments more attractive.

It also said the recommendations should apply to the present and future investments.

The ministry also clarified that the transfer of shares of an Indian company is freely permitted from one non-resident to another non-resident investor.

The urban development ministry has suggested that real estate firms with less than 50% foreign ownership be exempted from all current restrictions, including the minimum area norms for development of projects.