Delink FII, FDI in realty: Commerce ministry

In a move that will provide much-needed clarity on investment rules in real estate companies, the commerce and industry ministry has proposed that investment by registered foreign institutional investors (FIIs) under the portfolio investment scheme should not be counted as part of foreign direct investment (FDI).

The clarification is part of a review of the FDI policy being piloted by the ministry, the administrative in-charge for the country's FDI policies.

Large real estate companies like DLF, Unitech and Parsvnath already have foreign portfolio investments and a policy clarification is expected to see a significant increase in the stock market play in these companies, experts said. 
 

BUILDING ON REALTY FIIs stakes in real estate stocks (in %)
	Mar'07	Sep'07
Indiabulls Real Estate	39.96	46.61
Phoenix Mills	8.63	42.64
D S Kulkarni Developers	32.59	32.33
Anant Raj Ind	17.03	28.59
Ansal Housing & Constn	15.13	20.18
Ansal Properties	10.13	15.78
HDIL	NA	9.34
Sobha Developers	5.84	7.41
DLF	NA	7.30
Parsvnath Developers	3.10	7.20
Puravankara Project	NA	7.14
Unitech	7.37	6.82
Orbit Corporation	NA	6.39
Lok Housing	6.50	4.08
Peninsula Land	1.46	3.57
Omaxe	NA	3.01
Akruti City	2.27	1.16

"This will mean that FII investment need not follow FDI guidelines as set out by Press Note 2 of 2005, which impose a three-year lock-in period on investments and sets minimum construction and acreage development slabs in real estate projects," said Akash Gupt, executive director, PricewaterhouseCoopers.

This proposal is part of several others in the proposed FDI review, which is expected to come up for discussion at the Cabinet Committee of Economic Affairs (CCEA) soon.

However, it remains to be seen if the CCEA will approve this. This is because the Department of Economic Affairs (DEA) in the finance ministry is of the view that pre-IPO investment by FIIs is akin to FDI and suggested that Press Note 2 (2005) should apply to them.