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FDI in Indian Real Estate

With favorable interest rates on deposits of non-resident Indians (NRIs) the government is expecting a jump in NRI remittances and investment in infrastructure sector.

The state governments are taking specific measures to attract NRI investment in priority areas, especially the infrastructure sector. Andhra Pradesh, Maharashtra, Kerala and Tamil Nadu, along with Punjab have attracted huge NRI investment. Andhra Pradesh is now receiving the highest amount of money remitted by NRIs to India, followed by Maharashtra.

Many NRIs have submitted proposals to invest in India, especially in IT, real estate, telecom, and electrical equipment, pharmaceutical and other sectors. A lot of NRI funds are coming to India from the US and Gulf NRIs who are the most active participants. Small and medium NRI businesses also have made significant investments. The government has plans to set up separate cells to attract NRI investment or NRI FDI.
FDI's share in domestic real estate market is higher than levels achieved in the previous years. The growing interest of global real estate players in the Indian real estate market and increasing demand for office space in IT & BPO are aiding this.

NRI investments in real estate have been simplified to encourage the inflow of funds. The Government of India has put in place a liberal and transparent policy for investment from overseas Indians. Most of the sectors are open to Foreign Direct Investment (FDI) under the automatic route.

Several measures have been taken by the RBI. NRIs can invest, transfer, give and inherit immovable property. NRIs holding Indian passports and persons of Indian origin (PIOs) enjoy parity of status. The RBI has granted general permission to person resident outside India holding Indian passports and PIOs to buy residential and commercial properties in India.

Housing finance companies and banks have been permitted to offer NRI home loans and also to PIOs. For repatriation, NRIs do not have to go through a circuitous route. They can approach authorized dealers of foreign exchange without going through the RBI. The rental income obtained from investment in Indian real estate can also be repatriated every year.

Both NRIs and PIOs can invest in limited companies engaged in real estate development. The paid-up value of shares/ convertible debentures purchased by an NRI, on both repatriation and non-repatriation basis have a limit of five per cent of the paid-up capital/paid-up value of each series of debentures. The aggregate paid-up value of shares/convertible debentures purchased by all NRIs can be raised to 24% of the paid-up capital of the company/paid-up value of series of debentures.

Sale proceeds of immovable property, acquired even out of rupee funds, can now be repatriated if the property has been held for a minimum of 10 years. There is no lock-in period with regard to immovable property that is inherited. . The repatriation in the case of residential properties is restricted to a maximum of two properties

NRIs can get home loans and repay it through inward remittance using normal banking channels or by debit to his NRE/FCNR(B)/NRO account or out of rental income derived from renting out such property. Repayment of loan in foreign exchange is treated as equivalent to foreign exchange received for purchase of residential property.

NRIs are allowed to transfer as gift any residential/commercial property in India to a person resident in India or to an NRI or PIO. The sale proceeds of the property received as gift will be credited only to the NRO account. NRIs who acquired immovable property while they were resident in India can continue to hold or transfer such immovable property. There is no lock-in period for sale of residential/commercial property. NRIs can remit abroad up to $1 million per year from the sale of immovable property in India.

Foreign Direct Investment is encouraged and permitted, subject to certain conditions, in the following real estate sectors in India. It includes hotel development, tourism, hospitality, hospitals, and resorts township development, development of commercial real estate, built-up infrastructure, housing and construction projects, housing and construction projects, building educational institutes, building recreational facilities, infrastructure projects at both regional and local level and Special Economic Zones.

 

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