RBI Denies FII Status to FDI in Booming Realty

Monday, January 8, 2007

The Reserve Bank of India has denied granting FII status
to foreign direct investments received through private placement
of equity by different construction companies. This is taken as
a step to keep a check over the asset bubble in fast flourishing
realty stocks.

RBI does not want to take a big leap at any risks whatsoever. It is no mood to allow any relaxation for FDI brought in through private placement by real estate developers, whose projects are not in fulfillment with the guidelines of department of industrial policy and promotion (DIPP).

Real estate biggies are always in a look out to make a killing on growing interest of potential investors for realty sector stocks. This is what encourages them to seek FII status for their pre-offer placements to encash on these prospects further.

DIPP has been seeking views of Finance Ministry on the market sensitive subject as RBI appears to be taking a tough stand from now onwards. As opposed to the reports, the government has no aim to relax FDI norms for the sector, say officials.

Every real estate company is required to meet the guidelines of its projects before having FDI. A majority of developers see this rule as the biggest hurdle in their way that prevent them to leverage their existing projects for foreign investment.

RBI has taken a decision that no private placement will be treated at par with the portfolio investment since these companies involve discretion of the promoters of a company.