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.