Revised FDI Norms To Spur Real Estate Investments In India

The Union Cabinet, on May 22, 2015, decided to relax the FDI norms for Non Resident Indians (NRIs), Overseas Citizens of India (OCIs) and Persons of Indian Origin (PIOs). The Cabinet approved certain amendments which stipulate that Investments by NRIs under Schedule 4 of FEMA regulations will be deemed to be domestic investment at par with the investment made by residents.

As NRI investments in real estate in India is expected to rise by 35% this year, according to certain estimates, the FDI reforms would accelerate the process even more. In the previous fiscal year, NRI investments were 18% of investments in real estate. But, it was expected to double because the confidence of investors in the NDA government is extremely high. Currently, much of the investments of NRIs in property in India are in premium residential and commercial property.

According to the approved amendments, NRIs, OCI and PIO cardholders will be able to invest in real estate in India under Schedule 4 on non-repatriation basis. Earlier, NRIs were eligible to all tax benefits that Indian citizens received. But, if NRIs want to repatriate the proceedings from investing in India, the money needs to come in foreign currency from an overseas account, Non-Resident External (NRE) or a Foreign Currency Non-Repatriable (FCNR) account. They could repatriate up to the amount invested in the property. Another restriction was that repatriation cannot exceed the foreign exchange money paid to purchase real estate through banking channels. NRIs also could not repatriate proceeds of more than two properties. But, with the approval of these amendments, investments of NRIs, OCIs or PIOs in real estate or in any other sector will not be subjected to any of the restrictions in foreign investment.

Eased FDI norms will lead to greater investment in real estate because investing in India has become more attractive for them. Much of the investment of rich Indians is in property. Many of them live abroad. The repatriation rules were deterring NRIs from investing in real estate in India because the incentives were not good enough. This imposes a huge cost on India's economy because many NRIs want to invest in India, especially in real estate. The latest move by the cabinet is a good policy decision, because Indians living abroad tend to prefer having tangible investments in India.