Sebi, RBI spat grounds VC play in realty

Sharp differences between the Reserve Bank of India and the Securities and Exchange Board of India have stalled foreign venture capital real estate funds from setting shop in India.

Sharp differences between the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) have stalled foreign venture capital real estate funds from setting shop in India.

The RBI is insisting that real estate funds floated by foreign venture capital investors (FVCIs) be treated at par with foreign real estate funds coming through the foreign direct investment (FDI) route for regulatory purposes.

At present, FDI in the real estate sector is permitted through the automatic route and does not require the Foreign Investment Promotion Board (FIPB) nod. But fund houses have to adhere to certain project and financial restrictions.

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The rules governing venture financing are liberal and allow funds to park and withdraw money at will. But FDI rules require these funds to stay for a minimum three years. Repatriation of any of the initial investment by funds before the stipulated period requires prior FIPB approval.

The project conditions governing the FDI rules prohibit sale of undeveloped land, ie, the developer may purchase undeveloped land but must develop it before selling it further. Also, it states that at least 50 per cent of the project must be completed within five years from the date of obtaining statutory clearances.

Presently nearly 20 FVCI applications to invest in Indian real estate sector are pending with the RBI, but have been approved by Sebi.