To further restrict foreign investment in real estate India , the Government is preparing to introduce a lock-in period for non resident Indians who invest in projects prior to an initial public offer.

This regulation is currently binding only on foreign institutional investors (FIIs). Opportunistic investments in IPOs of real estate companies and sudden withdrawals may cause a real estate bubble, the Government fears, and hence the precaution.

The lock-in period for 3 years on NRI investments of the kind, would dissuade the promoter from surreptitiously directing his money through the NRI route, as is the practice of late. Accordingly, the Foreign Exchange Management Act would also be amended.

Real estate companies planning IPOs would have to make adjustments to meet the new norms which would be elaborated on shortly.

Some companies have been asked to hold back their IPO placements till the Government issues guidelines on foreign investment in real estate in India.

Currently, the norms allow 100% FDI in real estate projects but with a lock-in of 3 years, a funding of al least USD 5 million and development of 10 hectares of land.

These regulations apply to NRI investors and foreign investors. The Department of Industrial Policy and Promotion and the Finance Ministry were divided on the issue of pre-IPO placements.

DIPP is in favour of categorizing pre-IPO placements to FIIs as portfolio investment, while the RBI and the Finance Ministry argue in favour of such investments being treated as FDI.

The USD 4 billion investment that came into real estate in 2006 was through private placements.

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