Monday, January 15, 2007

Massive Flow of funds could lead to speculation

Economic Times
IT SEEMS the RBI has informed the finance ministry of the whopping growth in the real estate sector, which has seen a 400% rise in foreign direct investment (FDI). In fact, the central bank had expressed concern over the sudden rise in FDI inflow into this sector and the impact it could have on the prices in domestic market.
The inflow into the sector went up to $703.3 million in January-October, 2006 from $135.35 million in January-October, 2005. RBI, which has been consistently cautious over FDI flow into realty sector, has warned that such massive flows could lead to speculation and over-heating of the real estate sector. The total FDI inflow into the country in January-October, 2006 stood at $7.9 billion, up 143% from $3.2 billion in the same period in 2005. RBI had earlier held that pre-IPO and follow-on public offers of real estate companies should be treated as FDI and governed by the FDI guidelines. It had argued that the Foreign Exchange Management Act (Fema) needed to be amended if FDI in real estate had to be given the status of portfolio investment.
With more than 35 big-ticket foreign funds having checked in, more than $ bn additional FDI is knocking the doors of the real estate sector. According to industry estimates, nearly 90-100 real estate funds have already parked themselves in the country scouting for investment opportunities.
Merrill Lynch forecasts that the realty sector will grow from $12 billion in 2005 to $90 billion by 2015. As of now, some of the prominent global funds that are aggressively investing in the sector include Carlyle, Blackstone, Morgan Stanley, Trikona and Warbus Pincus. Experts say they are sitting on a total corpus of $12 - 15 billion.

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