Foreign Invetors, mostly speculators have now been instructed that their investment in real Estate in India will be locked in for 3-years. We had asked the Indian Government for a 5-year lock-in for Residential Real Estate and keep the Commercial/ SEZ and Retail real estate for FIIs to speculate but with pressure from retailers and other big companies, the Government decided to extend FDI Lock-in for any foreign investment in real estate.
The main document governing the FDI in property business presently is the March 2005 press note 2 which spells out that original investment by a foreign investor cannot be repatriated before a period of three years from completion of minimum capitalization. Also, as per the FDI norms prevalent currently, a foreign investor has to bring in at least a minimum amount of $5 million in beginning for participating in a joint venture with an Indian realtor. The investor can bring rest of money for the JV at a later stage in small tranches.
The confusion when both the above norms were looked at was that whether the foreign investor could not withdraw only the initial investment of $5 million till the lock-in period, or the entire money that was invested in incremental tranches would also be subject to the lock-in.
The department of industrial policy and promotion (DIPP) has now made it clear that the lock-in period of three years applicable on foreign investments is for the entire capital and not against the initial investment only, as might had been understood earlier.