Pre IPO Placements by Real Estate Firms

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The government of India is planning to recognize the Pre IPO Placements by Real Estate Firms as a foreign direct investment by foreign institutional buyers (FIIs). This has been done to attract more investments in the booming real estate sector of India.

100% FDI is allowed in construction and development sector of India, through automatic route. This has propelled growth of Indian real estate in areas like retail and residential and it is expected to grow at 20% till 2010. Today, Foreign Direct Investment is allowed for projects which are over 10 hectares of land and with minimum US$ 5 million of investment. Thus small sized projects cannot be funded through Pre IPO Placements by Real Estate Firms.

The Pre IPO Placements by Real Estate Firms are leveraged by the real estate developers to raise capital for their property development projects. This effectively provides them with virtually cash free deal as this allows them to offer advance bookings much before the actual construction of the property. The popularity of the Pre IPO Placements by Real Estate Firms in India is on the rise. A majority of real estate developers in India are dependent on the pre-launch funds and they start projects simultaneously while accumulating funds through pre-placements. They utilize these funds to either to complete another project or acquire land. Presently more than 300 funds are in operation in India. They are classified mainly into two types- Real Estate Investment Trust (REIT) and Real Estate Mutual Funds (REMF).