With Composite Cap, NRI Investments In Indian Real Estate Set To Rise Further

Non-Resident Indians have been investing greatly in the Indian real estate markets in the recent past. It was estimated that NRI investments in property in India would rise by 35% in this financial year. The deposit flows from NRIs in Indian real estate doubled in the first two months of this financial year. This has greater implications for real estate in India, because NRIs often invest their money in fixed deposits before they channel their investments into real estate.

The policy framework too, is becoming far more favorable towards the NRIs. Yesterday, the Union Cabinet approved a proposal to allow composite caps in all kinds of foreign investment in India, except in banking and defense. This means that the cap for all kinds of foreign investment, whether it is Foreign Direct Investment (FDI), investment from Foreign Institutional Investors (FII), foreign portfolio investors or investment by NRIs.

How would this influence investments in real estate in India?

• Real estate is one of the sectors where the composite cap would apply, among natural gas, manufacturing, telecom, airports, mining, non-banking financial companies and pharmaceuticals. First of all, this will simplify the norms governing foreign investment in India. Currently, the norms differ and this is a major cause of confusion. For instance, certain investors would fit into many different categories.
• The government had eased the norms for NRIs investing in Indian real estate earlier this year. The government had approved amendments that proposed that non-repatriable investments by NRIs will be considered as domestic investments, and that upper ceilings on foreign investment would not apply to them.
• As now all types of foreign investment have the same upper ceiling depending on the sector, firms would be in a better position to decide what kind of foreign investment they should engage in. This would make it much easier for international firms to invest in real estate in India. Currently, India is one of the countries where the ease of doing business is among the lowest. According to the World Bank's Index on ease of doing business, India's rank was 142 out of 189 countries.
• Much of the NRI investment in India is in the form of premium residential and commercial property. As NRIs are far more likely to invest in real estate than in other forms of assets, complexity in the norms governing foreign investment were deterring them. As the government have made the norms more uniform, this would change.