Mumbai: The government proposes to treat the investments by foreign institutional investors in pre initial public offers (IPOs) of real estate companies as foreign direct investment (FDI).

The government has also said FII investments in the pre-IPO allotment of real estate companies will have a lock-in period of three years, in line with the FDI norms.

This means the investments cannot be withdrawn before three years. The lock-in period of three years is currently applicable to FDI in real estate.

The changes will be notified by the Securities Exchange Board of India through changes in its regulations for the foreign institutional investors.

Overseas funds are seen to be contributing to an asset bubble in the real estate space, by pushing the prices up. The government recently clamped down on the use of external commercial borrowings for the real estate sector for integrated townships.

The government had said that it intended to slow down the flow of foreign debt into the real estate sector through its recent curbs on external commercial borrowings (ECBs).