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FIPB locks foreign investors in real estate for three years
March 25, 2009: Foreign Investment Promotion Board (FIPB) has cleared a new provision that will prohibit the foreign investors in Indian real estate from selling their stakes to another foreign investor before three years. Previously, the three-year lock-in was applicable only on foreign investment in real estate and not on investors.
With the new condition, FIPB has overruled a provision in Foreign Direct Investment (FDI) policy that exempt foreign players from the rule in cases where fund transfer is from one non-resident to another.
Meanwhile, the Department of Industrial Policy and Promotion is of the view that a foreign investor can repatriate funds if it offloads its stake to another foreign investor as the actual investment in a project would remain intact and only its ownership would change. Press Note 2 of 2005 has an enabling clause to permit sale of investment between two non-residents before the end of lock in but it has not been allowed so far.
The issue came up when FIPB took up private equity fund 2I Capital's request to sell its investment in Delhi-based real estate firm Uppal Housing to Mauritius-based fund ICP Investments. The company had sought approval for transferring 1.9 crore shares in the Indian real estate company to the Mauritian company. According to the company's proposal, the fund transfer involved no repatriation of funds but physical transfer of shares from one investor to another.
Source: Economic Times