NRI investment in real estate on upswing

Monday, November 24 1997

NRI investment in real estate on upswing

Pratibha Rathore

MUMBAI, November 23: Although buying property as an investment option has taken a back-seat at a time when very little is happening in the Indian real estate sector, NRIs are still finding it a worthwhile investment option.

This is despite the fact that NRI investment into the Indian property market has gone down by 30 per cent in recent times. Industry experts are of the view that NRI demand is picking up again, albeit slowly. Meanwhile, real estate agents are all set to market the Indian real estate in the international property exhibition which will be held next month in Dubai.

``The real estate market is showing signs of improvement and in the next couple of months, property market will regain its hold once again,'' says Sunil Ramani, a Mumbai-based real estate consultant.

In order to make acquisition of immovable property simpler and better for NRIs, RBI has relaxed certain rules relating to loans and acquisitions of property in India for them. If an NRI holding an Indian passport invests in residential and commercial property in India out of funds remitted from abroad through normal banking channels, then he will be entitled for benefit of repatriation of original investment of foreign exchange if the sale is made after three years from the date of purchase.

However, he has to submit a declaration to the RBI within 90 days of purchase of the property to avail the repatriation facility. NRIs are, however, barred from investing in agricultural lands, farm houses and plantations and for carrying on business of real estate development.

RBI has also granted permission to NRI's to acquire immovable property by inheritance. The repatriation of sale proceeds of such inherited properties is not permitted.

For NRIs holding foreign passport, RBI has placed some restriction on the acquisition or holding of immovable property in India. The section 31 of FERA states,``No person who is not a citizen of India and no company other than a banking company which is not incorporated under any law in force in India shall expect with the previous general or special permission of RBI to acquire, hold or transfer or dispose of by sale, mortgage, lease, gift, settlement or otherwise any immovable property situated in India provided that the restriction does not apply to the acquisition or transfer of any immovable property by way of lease for a period not exceeding five years.''

Although RBI has given permission to those foreign companies to acquire or hold immovable property, which is necessary for or incidental to any activity permitted by RBI under section 28 or 29 of FERA. As per the act, foreign companies engaged in manufacturing or trading activity will be permitted to open branches in India for the following purposes:

To represent the parent company, other foreign companies in India, acting as buying, selling agent in India.

To conduct research work in which the parent company is engaged provided the results of the research are made available to Indian companies.

To undertake export and import trading activity.

To promote technical or financial collaboration between Indian companies and overseas companies.

Permission, however, is not granted to those foreign companies which have been permitted under section 29 of FERA to open liaison offices or to post representatives in India.

Industry experts are of the view that though the NRI as an investor is avoiding the property market in Mumbai, meanwhile end-user NRIs are finding the falling property prices a major incentive to buy now. ``Most NRI's prefer investing in multiple locations,'' says Ramani.

Ramani feels that most NRIs who are interested to buy property in India are a little hesitant as foreign nationals of non-Indian origin under the FERA cannot repatriate the sales proceeds although they are allowed to purchase immovable property in India with RBI's permission. However, for the purchase of immovable property in India by foreign citizens of non-Indian origin, RBI permission is required subject to following conditions:

The property is being purchased for residential use only.

The consideration for purchase of property or proceeds from sale of such property at any future date will be credited to the NRO account.

Although Ramani is not over enthusiastic about the forthcoming property exhibition in Dubai, he feels that at least the incentives put forth by the Indian participants will attract prospective buyers. ``The incentives will be simply too hard to resist,'' he avers.