Sunday, November 05, 2006: A recent Reserve Bank of India (RBI) announcement easing remittance of property sale proceeds should come as a welcome gesture for non-resident Indians (NRIs) wanting to gain from the current real estate boom in India.

The RBI has removed the lock-in period for remittance of sale proceeds of immovable property in India by non-resident Indians (NRIs) and persons of Indian origins (PIO), provided the amount being remitted does not exceed $1m in any financial year.

Earlier, NRIs and PIOs were permitted to remit up to $1m per calendar year for any bonafide purpose out of the balances in their NRO accounts.

These measures were announced as a follow-up of the recommendations of the Tarapore Committee on Fuller Capital Account Convertibility (FCAC).

Further, all categories of foreign exchange earners will be allowed to retain up to 100 per cent of their foreign exchange earnings in their Exchange Earners’ Foreign Currency (EEFC) accounts. The RBI also enhanced the ceiling of overseas investment by mutual funds of from $2bn to $3bn with a view to providing greater opportunity to mutual funds to invest overseas.

Authorised dealer banks will be permitted to issue guarantees and letters of credit for import of services up to $100,000 for securing a direct contractual liability arising out of a contract between a resident and a non-resident. Authorised dealer banks would be allowed to remit on behalf of their customers up to 15 per cent of the average annual sales or income or turnover during the last two financial years or up to 25 per cent of their net worth, whichever is higher for initial expenses, and remittances upto 10 per cent of the average annual sales or income or turnover during the last two financial years for recurring expenses. It would also permit remittance for acquisition of immovable property for overseas office within these limits.

The existing limit of $2bn on investments in government securities by foreign institutional investors (FIIs) will be enhanced in phases to $3.2bn by March 31, 2007.

Meanwhile, the group on cost of NRI remittance has proposed to dispense with existing restrictions on the number of number of tie-ups by banks with exchange houses and number of drawee branches for rupee drawing arrangements.

However these relaxations could be extended to banks with sound risk management systems. Moreover, public sector banks could study the feasibility of setting up centralised remittance receiving centres, extending the scope of real time gross settlement between banks in India and sensitise NRIs on options to minimise cost of remittance.

The measures initiated are clearly aimed at providing a further boost to the real estate market by making it easier for NRIs to buy property for the sake of investment. Doing away with the lock-in period means overseas Indians with money to play may invest, sell and use the proceeds for other, more lucrative investments as and when the opportunities present themselves.

The Indian real estate market is estimated at $12bn, and will reach $50bn by 2010, according to India Infoline. In a paper titled “Indian Real Estate - Land Calling”, researchers show how strong economic growth, favourable demographic changes, fiscal benefits and lower interest rates have helped the industry grow rapidly over the last 2-3 years.

The government has shown keen interest in developing the sector by relaxing FDI norms, with the industry estimated to grow at 30 per cent annually in 2005. It is estimated that India will experience a demand supply gap of 17.9m housing units by 2010. This apart, commercial real estate demand is expected to be around 350m sq ft out of which IT/ITES and organised retailing sector should contribute around 300m sq ft.

Anish Jhaveri of HSBC Holdings has been quoted as saying, India will have at least 50 property-related initial public offerings in the next year as the real estate industry booms.

The real estate market in India is worth about $12bn and is growing at about 30 per cent a year, Ernst & Young said in a report last month commissioned by the Federation of Indian Chambers of Commerce and Industry. Rising incomes, easy financing and population growth are driving demand for housing and luring overseas investors.

According to Jhaveri, venture capitalists and overseas investors were poised to invest over $5bn in the Indian real estate sector.

It is no wonder then, that organisers of a recent India Property Show at Dubai’s Airport Expo are pretty pleased with the response. Showcasing Dh17bn worth of property from across India, the four-day event brought together over 80 real estate and financial agents from different parts of the sub-continent.

Source: http://www.thepeninsulaqatar.com