Indian Real Estate Firms Circumvent FDI Policy

By NRI Realty News Desk · February 8, 2026

In an effort to control the inflationary trend in real estate in India, the government had initiated precautionary measures to control the flow of capital into the industry.

However, bankers and lawyers have worked their way around this
policy to finance real estate projects in India. The modus operandi
of some Indian firms to bring in foreign capital works something
like this:
To take advantage of the Indian Government’s moderate norms, some real estate firms set up subsidiary companies with token amounts in countries which offer tax benefits; this wholly owned subsidiary then becomes the medium to bring foreign funds into India.

This route was followed recently by an Indian company soon after
the Government restricted preference shares and hybrid securities
as foreign direct investment in Indian real estate.
Real estate developers in India are finding ways and means out
of the recent regulations.

Foreign capital will continue to find
its way into real estate projects in India through subsidiaries
who would have collected money from foreign investors till the
Government wakes up to this practice.
In India, these funds would be flowing in the garb of FDI through
the automatic route.

Issue of preference shares by these “foreign” companies is currently not covered by Indian law.

Overseas investors end up with indirect stakes in the Indian project, though bankers opine that clauses can be included by them to protect their interests, ultimately controlling the role their money is going to play.

Some foreign banks and institutional investors who are very
confident of the Indian real estate market are working on minimizing
risks on their investments in the country, and ensuring that
their funds fetch their estimated returns.

Indian real estate developers, with major commitments are not
fighting shy of bypassing regulations to fund their projects.
The Government would have to think faster in order to curb such
practices.