Need to Reconsider FII Norms in Real Estate

By NRI Realty News Desk · January 8, 2026

The RBI has shown great anxiety over volatility of short term capital inflows. The move comes as a response to the ongoing debate on foreign investment in Indian property market.

The government had paved the way for FDI in real estate sector,
which was earlier restricted to mega townships and settlement – through Press Note 2 (2005), thereby allowing 100% FDI in residential segment and construction projects.

Each project will have a certain minimum size, a minimum capitalization,
and the FDI was locked in for a period of three years.

This has put all the listed real estate companies in a situation
of perplexity.

These companies are an agglomeration of different
projects, some following real estate norms whereas others not.
Pre-IPO investment private placement to foreign institutional
investors (FII) has come up with solutions to overcome the hurdles.

These FII investments can also represent investments through
participatory notes made it easier to mask FDI in real estate
companies as FII investment.

The RBI has suggested that pre IPO/private placement to FIIs
in real estate be subject to FDI guidelines are not out of place.

The RBI also seems to be raising concerns over the destabilizing
effect of such inflows, but that is a much big issue significant
to all portfolio investment.

There is an urgent need to reassess the restrictions on FDI in
real estate. Also, the conditions should create unique problems
for real estate companies.

Listing certainly possesses the prospective
to improve transparency in a notoriously murky sector, but restrictions
on FII investments would actually discourage it.

The RBI may continue with lock in period, it would be futile
to put restrictions on projects. Putting the restriction can
prevent the property developers from developing real estate projects
and continue with smaller ones and float SPVs for large projects with foreign participation.

There is actually a need of simple policy wherein FDI is allowed
in real estate companies independent of project specifications.