Road Cleared for Foreign Investments in
All Types of Real Estates in SEBI Registered Investment Vehicles including Farm
Houses
[RBI Circular No. 63 dated 21st
April 2016]
Sub: Foreign Investment in units issued
by Real Estate Investment Trusts, Infrastructure Investment Trusts and Alternative
Investment Funds governed by SEBI regulations.
Attention of Authorised Dealers
Category – I (AD Category - I) banks is invited to the Foreign Exchange
Management (Permissible Capital Account Transactions) Regulations 2000,
notified vide Notification No.
FEMA 1/2000-RB dated May 3, 2000, as amended from time to time and Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident Outside
India) Regulations, 2000, notified vide Notification No. FEMA 20/2000-RB dated
May 3, 2000, as amended from time to time (Principal Regulations).
2. With
a view to rationalising foreign investment regime for Alternative Investment
vehicles and to facilitating foreign investment in collective investment
vehicles for real estate and infrastructure sectors, it has been decided, in
consultation with the Government of India, to allow foreign investment in the
units of Investment Vehicles registered and regulated by SEBI or any other
competent authority. At present, Investment Vehicle will include the following:
· Real Estate Investment Trusts (REITs)
registered and regulated under the SEBI (REITs) Regulations 2014;
· Infrastructure Investment Trusts
(InvITs) registered and regulated under the SEBI (InvITs) Regulations, 2014;
· Alternative Investment Funds (AIFs)
registered and regulated under the SEBI (AIFs) Regulations 2012.
Further, unit shall mean beneficial
interest of an investor in the Investment Vehicle and shall include shares or
partnership interests.
3. The
salient features of the new investment regime are:
i.
A
person resident outside India including a Registered Foreign Portfolio Investor
(RFPI) and a Non-Resident Indian (NRI) may invest in units of Investment
Vehicles.
ii.
The
payment for the units of an Investment Vehicle acquired by a person resident or
registered / incorporated outside India shall be made by an inward remittance
through the normal banking channel including by debit to an NRE or an FCNR
account.
iii.
A
person resident outside India who has acquired or purchased units in accordance
with the regulations may sell or transfer in any manner or redeem the units as
per regulations framed by SEBI or directions issued by RBI.
iv.
Downstream
investment by an Investment Vehicle shall be regarded as foreign investment if
either the Sponsor or the Manager or the Investment Manager is not Indian
‘owned and controlled’ as defined in Regulation 14 of the Principal
Regulations.
v.
In
case the sponsors or managers or investment managers are organized in a form other
than companies or LLPs, SEBI shall determine whether the sponsor or manager or
investment manager is foreign owned and controlled.
vi.
The
extent of foreign investment in the corpus of the Investment Vehicle will not
be a factor to determine as to whether downstream investment of the Investment
Vehicle concerned is foreign investment or not.
vii.
Downstream
investment by an Investment Vehicle that is reckoned as foreign investment
shall have to conform to the sectoral caps and conditions / restrictions, if
any, as applicable to the company in which the downstream investment is made as
per the FDI Policy or Schedule 1 of the Principal Regulations.
viii. Downstream investment in an LLP by an
Investment Vehicle that is reckoned as foreign investment has to conform to the
provisions of Schedule 9 of the Principal Regulations as well as the extant FDI
policy for foreign investment in LLPs.
ix.
An
Alternative Investment Fund Category III with foreign investment shall make
portfolio investment in only those securities or instruments in which a RFPI is
allowed to invest.
x.
The
Investment Vehicle receiving foreign investment shall be required to make such
report and in such format to Reserve Bank of India or to SEBI as may be
prescribed by them from time to time.
4. Further,
in terms of Regulation 4(b) (iv) of Notification
No. FEMA 1/2000-RB dated May 3, 2000, foreign investment in any company or
partnership firm or proprietary concern or any entity, whether incorporated or
not, which is engaged or proposes to engage “in real estate business, or
construction of farm houses” is prohibited. However, Explanation (i) ibid
provides that “real estate business” shall not include development of
townships, construction of residential /commercial premises, roads or bridges.
It is now clarified that foreign investment in units of REITs registered and
regulated under the SEBI (REITs) Regulations, 2014 will not be included in
“real estate business” for the purpose of these regulations.
5. AD
Category – I banks may bring the contents of this circular to the notice of
their constituents and customers concerned.
6. Reserve
Bank has since amended the subject Regulations accordingly through the Foreign
Exchange Management (Permissible Capital Account Transactions) (Fourth
Amendment) Regulations, 2015, Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) (Eleventh Amendment) Regulations,
2015 and Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) (Second Amendment) Regulations, 2016 which have been
notified vide Notification No.
FEMA 345/2015-RB dated November 16, 2015, vide G.S.R. No.859 (E) dated November
16, 2015, Notification No. FEMA
355/2015-RB dated November 16, 2015, vide G.S.R. No.858 (E) dated November 16,
2015 and Notification No. FEMA
362/2016-RB dated February 15, 2016, vide G.S.R. No.166 (E) dated February 15,
2016 respectively.
7. The
directions contained in this circular have been issued under section 10(4) and
11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without
prejudice to permissions / approvals, if any, required under any other law.