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The NR Eye: Cap Removal on Loans May Boost Property Investments

There is nothing new about non-resident Indians (NRIs), particularly those in the Gulf region, wanting to invest funds in real estate. However, a recent survey has thrown up some interesting finds and trends in this regard.

Some media reports quoted a survey conducted on NRIs in the United Arab Emirates (UAE) to say that nearly ninety per cent of them wanted to buy property of Rs10m or more back home. What is really interesting is that one in every four of those surveyed planned to acquire real estate not to occupy later but as an additional investment. According to the reported findings of the survey, this figure rose by a good six per cent over last year.

While overpowering reasons such as the leverage afforded by a low-priced rupee and the unpredictability of stocks are prompting this thinking some strong supplementing factors too exist. For example, the current real estate prices are sluggish and entry at this stage could be profitable. Then, there is the advantage of easier and lower priced home loans.

Last, but by no way the least, is a recent government decision to completely do away with the cap on loans to against non-resident deposits in banks. This really is the icing on the cake for the NRI who manages his portfolio astutely.

Coming back to the survey, well, it was conducted by a real estate expo firm and there would be skepticism about the authenticity of the findings. Let’s not get entangled in figures, therefore. Suffice it to say that most NRIs in the Gulf are not at all averse to the idea of owning real estate purely for investment purposes.

Not very long back, in this very column, we had put forth some logical arguments as to why Gulf NRIs should want to enlarge the size of Indian property investments in their portfolios. The massive shortfall in India’s middle income housing sector is growing virtually by the day. Huge opportunities for investments exist in this sector not just in the metros but also in the Tier 2 and 3 cities.

The Government of India has already spoken of plans to provide incentives and rope in private sector investments in its desperation to bridge the gap between supply and demand for housing. It has been estimated that the current shortfall of housing in the country is more than 25 million. A report of the Asian Development Bank suggests that by the year 2030, this figure will be around 10 million a year.

Industry reports have noted a significant rise in the demand for mid-segment housing in the suburbs of Delhi, the national capital region, Chennai, Kochi, Hyderabad, Belgaluru, Kolkata, Chandigarh and Ahmedabad. Besides, there are opportunities in booming towns like Pune, Thane, Powai and Wadala. Real estate developers have reported a significant rise in NRIs’ demand at places like Navi Mumbai, Badlapur, Titwala, Virar and Bhoisar.

NRIs can make the most of the favourable coming together of multiple factors such as the exchange rate differential, easier norms and comparatively lower housing loans rates. Most importantly, since the real estate market in India is now on the verge of a take off after the global slowdown, developers are still offering up to 15 percent discounts on down payments.

Overseas Indians also stand to gain from the eased repatriation norms now. They are allowed to repatriate the amount paid for the acquisition of property in foreign exchange after a lock-in period of three years. The facility is restricted to not more than two such properties. The balance amount can be credited to a NRO account. They are also permitted to remit an amount of up to $ 1m in a given financial year out of the balance held in a NRO account.

As mentioned earlier, the most significant new development in this context is the lifting of the ceiling on loans against non-resident deposits in banks. There was cap of Rs10m for foreign currency and rupee loans taken against NRE and FCNR(B) fixed deposits. The Reserve Bank of India, in a notification issued last month, has lifted this cap.

According to bankers, there was no cap on such loans before 2000, in which year the Reserve Bank of India (RBI) introduced a cap of Rs2m. This was increased to Rs10m in 2009. Now, the RBI has lifted the cap again and allowed either the account holder or a third party to extend the balance in account.

These loans are availed of by NRIs when they want to make investments in India but do not want to break their deposits, as it would attract penalty for premature withdrawal. The purpose could be for investment in real estate or commodities like gold. There is no restriction on the end use of such loans. 

Via : The Peninsula


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