5 Modi Govt Measures That Make Realty Investments Attractive To NRI Investors In Silicon Valley

Prime Minister Narendra Modi reached the New York City on Thursday for a visit to the US. This is his second visit to that country after he became the Prime Minister. A key agenda during Modi's visit is to showcase initiatives such as 'Make In India' and 'Digital India' and invite more investments in the country. The PM will also be visiting the Non-Resident Indian (NRI) community in the US.

Under PM Modi, the current National Democratic Alliance (NDA) government has initiated many reforms to make investing in real estate easier for NRIs. As experts believe NRI investment in Indian real estate will surge in the current financial year, PropGuide looks at the five steps Modi took to make NRI investments in India's real estate sector easy, and how he can further ease restrictions that hinder investors:

In May 2015, the Centre amended the laws on foreign investment by deciding that investments by an NRI, an Oversees Citizen of India (OCI) and a Person of Indian Origin (PIO) from their Rupee account will not be treated as foreign investments. Non-Reptariable investments of NRIs in real estate in India would also be treated as domestic investments. This means that such investments will not be subject to any of the restrictions foreign investments are subject to. This policy move was intended to raise forex remittances. To further raise investments, the government may consider all NRI investments, regardless of their nature, as domestic. This would create greater incentives for NRIs to invest here.

The Modi government had earlier liberalised restrictions on foreign direct investments (FDI) in real estate and other sectors like defence, insurance, railways and medical devices. In October 2014, the government lowered the minimum built-up area requirement for FDI in property in India to 20,000 sq ft from 50,000 sq ft. The minimum capital requirement for FDI in Indian real estate was also lowered from $10 million to $5 million. Modi eased restrictions on FDI to improve India's rank in the Ease of Doing Business Index.

In May this year, the Centre also approved a proposal to allow foreign investment in rent-yielding office and retail space in India. This allows NRIs to invest in Indian retail space, without considering it domestic. If the government removes the minimum requirements on capital and built-up area, NRI investments in office space would rise. This sector is vibrant, and India has seen some of the largest office space deals in the recent past.

The government had earlier announced many regulations that were expected to boost the formation of Real Estate Investment Trusts (REITs) . In his 2014 Budget speech, Finance Minister Arun Jaitley had given a pass-through status to proposed REITs. After that, funds invested in REITs are not subject to double taxation in the hands of fund managers as well as investors. Investors alone would be taxed on the dividend payouts they receive.  REITs are also exempted from paying long-term capital tax gains and minimum alternate tax (MAT) . The government had also decided to tax the income of REITs through rents in the hands of the unit holder alone and not the trust. However, REITs still do not enjoy tax norms as they do in countries such as the US and Singapore. To create a more favorable environment for NRIs looking to invest in real estate trusts, the government can also exempt these from short-term capital gains tax.

The government's smart city mission, if implemented well, would be attractive to NRIs. According to media reports, the Gujarat International Finance Tec-city (GIFT city) in Ahmedabad is seen as a good bet by NRIs, keen on investing in property in Ahmedabad. To attract greater investments, the government can allow more favorable tax norms for NRIs investing in real estate projects in smart cities such as GIFT. The government and the Reserve Bank of India can also take measures to keep the value of the Indian Rupee stable.