The ambit of this clarification includes foreign joint ventures in housing, commercial premises, townships, resorts, educational institutions, and city and regional townships.

The decision was taken by the FIPB last month when it rejected a proposal by Keppel-Puravankara Development Pvt Ltd (KPDL) - in which Singapore-based Keppel Land Ltd holds 51 per cent - wanted to sell 1.5 acres out of a 62-acre plot it had acquired to develop an integrated township in Bangalore.

Keppel Land is the property arm of the Keppel Group, which has its core business in offshore and marine infrastructure and property development.

KPDL had proposed that since the entire project did not materialise, the company would sell "undeveloped land" of 1.5 acres at the market price at which it had acquired it from Purvankara Projects Ltd.

KPDL had contended that there were no restrictions on such sales under Karnataka's land laws. The company also argued that since it had offered Purvankara Projects the option of buying the land at the same price, it was not driven by profit motive.

Bangalore-based Purvankara group is one of south India's leading real estate developers and is developing over 18.78 million square feet of space and has operations in Kochi, Chennai, Coimbatore and Colombo.

The move is significant because several large Indian retail developers have tied up with international housing development companies to execute projects in the country. Apart from Dubai-based Emaar Properties, which has a venture with Delhi-based MGF, DLF has set up a joint venture with the UAE-based Nakheel group to build two townships for $10 billion.

Pegasus Realty, based in West Asia, has tied up with Indian partners at various locations and Citigroup Property Investors had tied up with Pune-based Gera Developers for city-based projects.

In its deliberations at the FIPB meeting, the Department of Industrial Policy and Promotion (DIPP) said the proposal could not be supported because guidelines under Press Note 2 of 2005 say joint ventures in housing and development do not entail sale of undeveloped land.

The ministry of urban development observed that foreign direct investment in retail is prohibited, so any sale of land may be categorised as real estate activity.