In Its zeal to enforce foreign direct investment (FDI) norms in the real estate sector, the government is becoming entangled in micro-regulation that runs the risk of stifling the flow of such investments. The FDI norms for the real estate sector — framed through the Press Note 2 (2005) over two years ago — were clearly designed for the simplistic situation of single projects from unlisted companies.
A host of restrictions including minimum project size in terms of area and a lock-in period were imposed to keep out speculative foreign capital. They did not take into account the fact that real estate companies could be listed. All problems flow from this basic issue. After labelling all pre-IPO investment or private placement to foreign institutional investors (FII) in real estate companies as FDI, the government has now decided to bar real estate companies from issuing depository receipts (ADRs or GDRs). The logic of the move is simple.
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