RBI Considers Allowing Real Estate to Tap Offshore Loans to Boost Dollar Inflows
The Reserve Bank of India (RBI) is considering a significant policy shift that could allow real estate projects to access external commercial borrowings (ECBs) for the first time in three decades. This move aims to bolster the rupee with increased dollar supply and acknowledges the sector's growing maturity.
RbiReal EstateEcbFdiDollar SupplyReal Estate NewsOct 05, 2025
A close reading of RBI's draft ECB policy indicates that the regulator is open to allowing ECBs in all real estate projects that are eligible for foreign direct investments (FDI). So, a project that qualifies for foreign equity can also attract foreign loans. While FDI, with low entry barriers, is allowed in smaller projects, ECBs are currently permitted in only large projects like industrial parks, integrated townships, and SEZs.
The draft policy can change this. It states that ECBs shall not be used for 'real estate business and construction of farm houses except activities/sectors permitted for FDI'. 'Real estate business' typically means trading in properties, and buying and leasing them out. A plain reading of the draft policy suggests that ECBs could be allowed in any project (including real estate) eligible for FDI. A common rule for all industries is: ECB is permitted if FDI is allowed. The plan now is to extend this to real estate.
What moved the regulator? Besides backing a labor-intensive industry, the preeminent reason is to support the rupee with a higher dollar supply. And, easier ECBs may be the quickest way to bring in more dollars amid selling by foreign portfolio investors and punishing tariffs putting pressure on exports. Second, authorities probably believe that the real estate sector has evolved and is better placed to handle risks. RERA and REITs have deepened the market, they would argue, though not all would agree as many deals are still cut in cash and there may be pockets of bubbles. Third, a significant, albeit unstated, reason is the emergence of a formidable lobby following the entry of large, influential corporates pursuing big real estate projects and acquisitions.
Chances are rules on who could lend may be relaxed. Currently, lenders must be residents of countries complying with the rules of FATF (the global anti-money laundering body) or IOSCO (an association of organizations that regulate the world's securities and futures markets). According to the draft policy, a 'recognized lender' is simply 'a person resident outside India.'
However, the proposed changes could be leg-ups to many businesses. 'Today, banks can't give loans to private builders for buying land, even if the land is meant for developing commercial or residential projects. So, builders work with landowners through Joint Development Agreements as an alternative to bank funding. The proposed relaxation would permit the use of ECBs to purchase land intended for construction of commercial or residential projects,' said Pankaj Bhuta, founder of P. R. Bhuta & Co, which specializes in tax and forex regulations.
Similarly, a limited liability partnership (LLP) could borrow from an NRI partner with the draft proposing to let LLPs access ECBs, said Isha Sekhri, partner at Isha Sekhri Advisory LLP, a CA firm.
Frequently Asked Questions
What is an External Commercial Borrowing (ECB)?
An External Commercial Borrowing (ECB) is a financial mechanism that allows Indian entities to borrow from overseas lenders. This includes loans, bonds, and other financial instruments that can be used to fund various projects and operations.
Why is the RBI considering allowing ECBs in real estate?
The RBI is considering allowing ECBs in real estate to bolster the rupee with increased dollar supply, support a labor-intensive industry, and acknowledge the sector's evolving maturity and ability to handle risks.
What are the current restrictions on ECBs in real estate?
Currently, ECBs are permitted only in large real estate projects like industrial parks, integrated townships, and SEZs. Smaller projects that qualify for FDI are not eligible for ECBs under the current rules.
How might the new policy impact the real estate sector?
The new policy could provide a significant boost to the real estate sector by allowing more projects to access foreign funding, potentially leading to increased investment and development in the industry.
What are the potential risks of allowing ECBs in real estate?
The potential risks include the possibility of creating property market bubbles, increased exposure to foreign currency risks, and the potential for misuse of funds. However, the RBI believes that the sector is now better equipped to handle these risks.
Related News Articles
RERA Cases Weekly Round-Up: Relief for Homebuyers Across India
From refund orders to structural defect rectification
Gurugram Leads Housing Price Surge, Mumbai Lagging Behind
In the last five years, the average price of new housing projects in India’s top 10 cities has surged by 88%, with Gurugram leading the pack at a 160% increase. Mumbai, on the other hand, has seen the lowest rise at 37%. This surge is attributed to massiv
Anant Raj Reports 75% Increase in Net Profit for Q2 FY25
Anant Raj has announced a significant 75% increase in its net profit for the second quarter of the fiscal year 2025. The company also reported a 53.67% rise in its net consolidated total income. This robust growth is a testament to the company's strategic
DLF JV Firm Sells IT Park in West Bengal's Largest Real Estate Deal for Rs 637 Cr
In a significant move, DLF, the country's largest real estate developer by market cap, has completed the sale of an IT park in West Bengal for Rs 637 crore. The deal, involving a joint venture firm, marks one of the largest real estate transactions in the
Eleganz Interiors Files DRHP with NSE Emerge
Eleganz Interiors plans to use Rs 25 crore from the IPO proceeds to repay a portion of its outstanding borrowings, as it files its DRHP with NSE Emerge.
Tata Steel Slapped with Rs 146 Mn Fine for Delay in Stamp Duty Payment
Tata Steel, one of India's leading steel producers, has been penalized with a fine of Rs 146 million by the Maharashtra government for failing to timely pay the stamp duty. The fine, as per the company's exchange filing, highlights the importance of adher