Tuesday, May 15, 2007

Govt shuts door on foreign money for realtors


It's become tougher for real estate companies to raise foreign capital. CNBC-TV18 reports on how that will impact realty prices.

There seems to be no room here for dollars anymore. The government has shut the door on realty companies raising foreign funds via preference shares.

The Finance Ministry has notified that all foreign funds coming in via non-convertible, optionally convertible or partially convertible preference shares would be considered as debt.

Realty companies are not allowed to raise foreign debt. Sanjay Bansal, Partner, Ambit, ''The quantum of money coming through the non-convertible preference share route was sizeable so far and that will trickle down or shutdown given the regulations."

Sizeable is right - at USD 4 billion foreign funds make up a fifth of the total investments in the real estate sector. Half those dollars coming in are via preference shares. To seal the deal - the Finance Minister has also categorized fully convertible preference shares as equity. This makes it tough for foreign funds to repatriate their cash.

It also could activate FDI limits - especially in land-oriented deals. Net - the dollar flow may calm down and that could be good news for prices.

Akshaya Kumar, CEO, Park Lane Property, said, ''The mad frenzy, which was happening on chasing land anywhere, at any price anyhow, anytime is going to slowdown and effectively that will cool the land market.''

It adds up to a triple whammy - first banks were stopped from funding developers to buy land. Then real estate companies were barred from raising external commercial borrowings or foreign debt and now there are roadblocks on the popular preference share route. Fund raising is going to be a tall task for real estate developers in Mumbai.

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