NRI Investment in the Indian Real Estate: The Raging Issues and their Solutions

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In the past decade, one international community has witnessed an upward mobility not seen for many a period. Fuelled by high paying white-collar jobs, smart investments, and the desire to spend consciously, this community today is one of the world’s biggest investors. From real estate to finance, technology to healthcare, and start-ups; the Non-Resident Indian aka NRI has become the ideal international investor. Many nations are making attempts to lure them with attractive freebies, eased regulations, transparent workings, and excellent credit facilities.

The NRI community has shown interest and invested in many markets and industries. The real estate market has caught the community’s eye in the past few years. There are many examples to illustrate this point.

In the United States, data from the National Association of Realtors revealed that between April 2016 and March 2017, Indians invested $7.8 billion in the US real estate. Florida, Texas, New Jersey, and Arizona were the most preferred property markets.

According to the data from the Government of Dubai’s Land Department (DLD), real estate investments reached Dh91 billion from 55,928 investors in 2016. Indians ranked the highest in terms of volume and value with Dh12 billion worth of property transactions from 6,263 buyers.

Even in the UK, the government is attempting to woo and push for Indian investment in the country’s real estate sector. Greg Hands, UK’s Minister of State for Trade and Investment, told BusinessLine,“I think Indian investors could play a big role in our affordable housing agenda.”.

It is a hard evidence that the NRI community is the one with deep pockets. From the Prime Minister’s many foreign trips to the bilateral talks and deals, the Indian Government has made sure it encourages the community right back to its roots.

However, the NRIs have always faced a lot of trouble when it comes to investing in Indian real estate. The first one comes from a lack of confidence. An influential annual World Bank project ‘Doing Business’ quantifies how a nation’s regulations influence domestic and medium-sized firms in doing business.

The business areas measured include getting constructions permits, property registration, getting electricity, paying taxes, etc. Some of these are important for the realty sector. According to this project, India has been marked poorly.

Year

India Ranking

2017

130

2016

131

2015

142

2014

134

2013

132

The rules and regulations for investment in the real estate sector are restrictive and hence hampers any NRI investment in India.

Investment Rules

1.

NRIs can purchase of residential and commercial properties but cannot purchase agricultural land/plantation property/farm house in India.

2.

To acquire or purchase agricultural land/plantation property/farm house in India requires special RBI approval who consult the Government of India before any approval.

3.

For purchase of immovable property, an NRI should transact in Indian currency via an NRI account in an authorized Indian bank.

4.

For repatriation of sale proceeds from sale of immovable property, the said property should be owned or acquired when the NRI was a resident of India.

5.

No citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan,

China, Iran, Nepal or Bhutan can acquire or transfer immovable property other than lease; not more than five years without RBI approval.

While these rules and regulations can do with changes, it does not mean all is not well. The recent introduction of Goods and Services Tax (GST) is seen as a game changer. According to National Real Estate Development Council (NAREDCO) President, Parveen Jain, “The GST will be a game changer for industry, including for real estate sector, since it will subsume more than 16 major taxes and levies into a single consolidated tax,”.

The RERA (Real Estate Regulatory Act) that came into effect on May 1, 2017, aims to make purchase of real estate simpler with increased accountability and transparency. Some of its features are:

  • No advertisement of project without registration.

  • The promoter has to provide a declaration, supported by an affidavit stating the time period for the completion of the project.

  • Agreement of Sale will carry the date of possession.

  • Non-adherence to rules can result in the project losing its registration and the promoters facing imprisonment up to three years along with a fine.

The introduction of GST and RERA has paid some form of dividend. German insurer and asset manager Allianz’s real estate arm has entered into a partnership with Indian Sharpoorji Pallonji Group who will establish a fund worth US$500 million and target the office market.

The NRIs would love to see an ease in the existing rules and regulations because they wish to invest in India. However, if it does not happen soon, other nations with their goodies and freebies can attract the NRIs towards them leaving India with a gigantic investment deficit.