NRIs return boosts residential demand

News Posted - 2009-12-22

Govt Plans to Tighten Investment Norms for NRIs

The government plans to tighten investment norms for non-resident Indians in companies to ensure that they do not violate foreign direct investment sectoral caps or enter areas where such investment is banned.

The Reserve Bank of India has also mooted a proposal to withdraw the special status given to NRIs for investing in sectors such as aviation, housing and real estate.

NRIs, for example, are permitted to invest up to 100 per cent in air transport services as against only 49 per cent allowed to other foreign investors. Also, NRIs are exempt from the conditions imposed on minimum capitalisation norms in real estate as well as the minimum size of area to be developed for housing.

As a first step, RBI and the Department of Industrial Policy and Promotion have agreed on the need to scrap key clauses in Schedule 4 of the Foreign Exchange Management Act, which permits NRIs to invest in companies on a non-repatriation basis. The proposal is expected to be cleared soon.

This window was given to NRIs so that they could utilise their domestic resources in their non-resident ordinary rupee account, which could not be repatriated outside India. In 2008, however, limited repatriation up to $1 million per year was allowed.

At present, NRIs can put their money in Indian companies through the FDI route or invest in the shares of a company through the secondary market, also called portfolio investment, besides investing through a route that does not allow repatriation.

However, under the new definition of FDI under Press note 2 of 2009, investments by NRIs through the non-repatriation route is not included while calculating the sectoral caps for FDI in a company. But NRI investments through the FDI route or the portfolio investment route is included in calculating sectoral caps.

RBI has argued that this provides the NRIs an opportunity for "regulatory arbitrage". In simple terms, an NRI can invest, say in a telecom company directly via the FDI route or through portfolio route upto 74 per cent, which is the sectoral cap, and then acquire, say an additional 10 per cent through the non-repatriation route, which takes his total investment to 84 per cent, and violates the sectoral cap in telecom.

As the policy does not make it mandatory for an NRI to report to the government the 10 per cent equity he has picked on non-repatriation basis, RBI argues that it "escapes the gaze of regulatory and supervisory institutions".

NRIs can also use the non-repatriation route to invest in the equity of companies were FDI is banned or it is in the negative list. These include retail trading (except single brand product retailing), atomic energy, lottery business and gambling and the betting sectors.

The government is also considering a proposal by RBI for withdrawal of special status given to NRIs in order to close any "possible arbitrage". However, some government departments are not in favour of such a move.

Besides aviation, in the real estate sector FDI policy has imposed certain key conditions like the minimum area to be developed should be 10 hectares in case of development of serviced housing plots, and built up area of 50,000 square metres in case of construction development projects. But these restrictions do not apply on NRIs.

Source: Business Standard 19/4/10

NRIs return boosts residential demand

An estimated 25 million NRI's living in 130 countries have remitted US$52 billion so far this year. In fact India topped the list of countries in remittance flow followed by China and Mexico, according to World Bank report on Migration and Development Brief. Migrant remittance flow to developing countries will be around $317 billion this year. It was $338 billion in 2008, higher than the previous estimate of $328 billion. A substantial portion of the NRI/PIO investment was directed towards Indian real estate.
The impact of global slowdown, job losses and unviable job offers has necessitated a section of NRIs to return to Indian shores. Time was when Gulf NRIs were bristling with confidence on noticing certain Gulf countries like Dubai in the UAE, Qatar and Kuwait changing local land laws to permit expatriates to invest in local real estate.
While a few HNIs had invested, others could not afford the high cost of local real estate and felt that they were left out in the race. But times have changed now. A significant development is the sudden change in visa rules for investors in local real estate in Dubai. Earlier visas were committed for all expatriate investors in local real estate irrespective of the investment limit but a recent ruling has changed it only for those who had invested a minimum of Dh1 million.
It is said that multiple entry visas for six months are granted to investors which will be renewable thereafter. This has put other investors at crossroads now. They will have to depend on local property management companies in the event of eventual return to home country. Even the existing visas granted for investors in Palm Jumeirah are valid for six months and renewable every time, say Dubai realtors.
According to housing finance companies and banks disbursing home loans to NRIs/PIOs in Dubai, there has been a sudden surge in demand for residential property across Indian cities and particularly for tier II cities in the wake of the economic slowdown in the emirate. The home loan market in Dubai alone has been estimated at Rs 250 crore, Rs 300 crore per month with housing finance companies and banks having representative office to disburse home loans. The demand for built units is said to be more as returning NRIs are keen to move into their own units.
“Our loans are for residential units in cities like Jaipur, Ahmedabad, Mangalore and Mysore”, according to industry sources in Dubai. Property developers in major cities with a consistent track record and units in the price range of Rs 30 lakh and Rs 60 lakh are sought after now in the changing market scenario, say industry sources. Property shows are held at periodical intervals in six AGCC countries where expatriate Indian population has been estimated at 5 million. In a recent survey conducted at the India property show held in Doha, Qatar, southern cities like Chennai, Bangalore and Hyderabad drew more demand for apartments, villas and developed plots. A substantial number of Gulf NRIs are keen for property management services across the country.
According to Sasi Nair of Real A Consulting Service Inc., in the bay area in California, returning NRIs are keen for built units for investment as expatriate Indians have definite plans to return home. The price range varies for apartments and villas from Rs 40 lakh to Rs 80 lakh. Southern cities in particular Bangalore, Chennai and Hyderabad are driving the demand though minimal level demand exists for other cities as well. Most of the NRIs keen to invest in real estate back home are looking for home loans as they are unable to get loans locally due to the current tight liquidity situation across US.

Source: Indian Realty News 9/12/09