An Explainer: Lock-in Period

Lock-in period is the period during which an investor cannot sell or exit an asset.

PropGuide explains lock-in period

The term lock-in period is used in different contexts. Depending on the context, it could be the period during which a real estate developer is not allowed to exit a project, or the period during which banks or financial institutions are not allowed to change mortgage interest loans. Lock-in period, in another context, is the period during which the borrower cannot fully repay the loan without paying a penalty. Many lenders have such polices to ensure that they are able to cover the cost of processing and marketing the mortgage loan.

Recently, the Indian government decided to remove the restriction stipulating a lock-in period of three years for foreign direct investment (FDI) in construction, when the project or trunk infrastructure is not completed. The government also decided that the lock-in period did not apply to hotels, resorts, hospitals, educational institutions, and special economic zones (SEZs) . Many economists argue that such decisions should be based on business sense, and profit-loss calculations, as long as real estate developers and investors honour their contracts.

Check out PropGuide's comprehensive guide to real estate terms here.

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