100% Fdi In Housing Opposed

The proposal to allow 100 per cent foreign direct investment in housing has met with stiff resistance from several sections of the government and as a result may not obtain easy approval of the cabinet.

Some of the ministries have submitted that in the background of the south-east Asian meltdown _ attributed in part to a collapse of the banking sector owing to overexposure to the housing sector _ the government should go easy on permitting 100 per cent foreign investment in this sector. Disclosing this officials said that they also feared that the proposal could be use for money laundering.

 

In South-East Asia easy entry of foreign players had led to a sharp boost in investment in the housing sector. Given the prevalent high rate of return, banks rushed to lend to this sector. In the aftermath of the currency meltdown there was a pullout of FDI, which led to a collapse in property prices and in turn triggered a financial collapse of the banks.

The suggestion mooted by the Ministry of Urban Affairs has suggested that 100 per cent FDI could be allowed subject to some safeguards. It has suggested that a lock-in period be inserted on the foreign capital, though no restrictions should be applied on the repatriation of dividends.

At present, non-resident Indians, persons of Indian origin and oveseas corporate bodies (OCBs) are allowed to invest in the real estate sector. The note defines an OCB as a company in which an NRI or Indians or persons of Indian origin holding at least 60 per cent equity.

The Industry Minister Sikandhar Bakht had in an earlier interview to Business Standard stated that he was not in favour of 100 per cent FDI in real estate, atomic energy and hazardous chemicals.

"In the real estate business, free entry and exit would imply speculative investments. And, the financial strength of foreign players cannot be underestimated," officials said. The Urban Affairs ministry in its defence has argued that prudential lending norms already exist in India and hence banks cannot afford excessive exposures.