The government proposes to treat the investments by foreign institutional investors in pre initial public offers (IPOs) of real estate companies at par with foreign direct investment (FDI).
The FII investments in the pre-IPO allotment of real estate companies will have a lock-in period of three years, in line with the FDI norms. This means the investments cannot be withdrawn before three years. The lock-in period of three years is currently applicable to FDI in real estate.The changes will be notified by the Securities Exchange Board of India through changes in its regulations for the foreign institutional investors.
The overseas funds were seen to be contributing to an asset bubble in the real estate space, by pushing the prices up. The government recently clamped down on the use of external commercial borrowings for the real estate sector for integrated townships.
The review of the pre-IPO allotments in real estate follows the concerns expressed by the Reserve Bank of India a year back on foreign inflows into the sector. The concerns were further heightened by fears of inflation being impacted by foreign inflows.
Read more in The Business Standard article.
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