The government is reviewing norms for investments by foreign venture capital funds in real estate, after the Reserve Bank of India coming round to the view that such funding is helping create an asset bubble in the sector.
There is a view in the government that such funding in the sector should be stopped completely, sources close to the development said.
Venture capital funds do not invest directly in real estate projects. Instead, they put their money in private equity firms, which, in turn, invest in the sector. A total of 35 private equity funds are reported to have invested in the Indian real estate sector and another 10 are said to be poised to do so. Many of them have kitties swollen with money from VCs.
The government had recently clamped down on the use of external commercial borrowing by real estate companies in order to check capital inflow, which, it feels, is fuelling inflation in the country.
With stock market sentiments too turning against the sector, real estate developers were looking at private equity funds as their last hope. But that source too could suffer if the proposed clampdown on venture capital funds takes place.
Read more in The Business Standard article.
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