NRI Investment in Farmhouses Now a Possibility
Tuesday, January 30, 2007
The Foreign Exchange Management Act (FEMA) restricts Non
Resident Indians and foreign investors from investing
in the agricultural sector, including farmhouses. However, if the
recommendation of the Associated Chambers of Commerce and Industry
of India (ASSOCHAM) study is anything to go by, overseas
Indians could soon be able to own farmland property.
NRIs show an inclination for investment in residential property,
and the much coveted farmhouses have been out of their reach till
now. This is being reconsidered by the Department of Industrial
Policy and Promotion (DIPP), following representations by NRIs.
The decision on the issue is likely to be taken up next month, with
the concerted view of the finance and agriculture ministries. If
the recommendation is upheld, the practice of purchasing farmhouses
through dubious means would come to an end.
The Finance Ministry is of the view that investing in farmland
property cannot be equated with FDI. After holding back FDI
in real estate, the Government of India finally opened
up to foreign investment in 2005. It allowed FDI in construction
projects in housing, commercial premises, resorts, educational institutions,
entertainment centres and residential townships. In 2006, $2 billion
flowed in to real estate, but in 2007, financial experts expect
the graph to touch $8 billion.
Independent studies by various non profit agencies on cross-border
investment like the AFIRE have singled out India as the best destination
after the USA for real
estate investment.
The year 2006 saw majors Morgan and Stanley pitching in with Rs.3
billion to support Mantri Developers of Bangalore, and is likely
to invest another $1 billion in projects over the next 4-5 years.
The tempo was maintained by ICICI Bank with a $1billion investment
from Tishman Speyer, and Kotak’s Real Estate Fund raising of $100
million., Goldman Sachs’ tie up with Unitech, Credit
Suisse’s investment plans of $1 billion, Emaar’s Rs.13,
000 crore public issue, Citigroup Property backing various commercial
projects to the tune of $500 million and Nakheel of Dubai propping
Parsvnath.
The investment buzz is getting louder with global investors selecting
projects that blend with their synergies in India. Royal Lee Kim
Tah Holdings, Royal Indian Raj International, Blackstone Group CalPERS
and Farallon Capital Management of the USA, HDFC Real Estate Fund,
Kshitij Real Estate Fund and UTI Venture Fund are also working on
their portfolios in real estate investment.
More investor friendly strategies by the government in terms of
simpler taxes/ NRI
property tax and streamlined regulations would encourage
private enterprise in acquiring technical know how for the real
estate industry in India.
