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28 February 2024

Does India need foreign investors?

By Graham Norwood

The news that in 2009 India produced more Dubai real estate buyers than any other country may not be a big surprise – but it does trigger the question: when will India reciprocate, and allow the rest of the world to easily buy a stake in its real estate?

India's role in Dubai is easy to explain. Firstly, India is an increasingly-wealthy location with plenty of trusts, consortia and individuals wanting to invest, and their demand has always been for high quality and often landmark projects.

Secondly, other markets with long histories of buying in Dubai (chiefly the UK, which produced the second largest group of investors last year) have been hit by their own recessions and credit restrictions. More surprising is that Pakistan and Iran should come third and fourth in terms of nationalities of investors in Dubai.

But what of India?

As it stands, a foreign national of non-Indian origin who is resident outside of India cannot buy any 'immovable property' (that is, real estate) in India. To be eligible they must be resident for 183 days in a financial year. This figure was chosen as it exceeds the duration of a tourist visa, which is 180 days – and which, incidentally, specifically states you are now allowed to purchase property while in the country under its jurisdiction.

India has also acted to close the main loopholes which exist – by accident or design – in many other countries which allow non-residents to buy if they jointly do so with residents. Indian statutes specifically say that a non-resident Indian (NRI) or a resident person of Indian origin (PIO) cannot buy a property jointly with a foreigner.

To keep themselves insulated from external buyers, India has also made it very hard for real estate to be purchased by companies. The law states that a foreign firm with a place of business in India can purchase property – but only on the strict proviso that it "is necessary for, or incidental to, carrying on his business". There are plenty of enforcing officers who inspect properties to make sure this restriction is enforced.

NRIs, whether Indian citizens or foreign citizens of Indian origin, do not need permission to buy property if the seller is an Indian citizen. A foreign national of Indian origin is "any person either of whose parents or any of whose grand-parents was born in India as defined in the Government of India Act, 1935" or any person who held an Indian passport at any given time.

The scope for exploiting loopholes in all of this is very limited – even leasing is difficult for foreigners – so why is India so strict?

When globalisation has opened so many other territories of the world, when other nations with noble national identities have internationalised their real estate industries, why is India holding out?

Undoubtedly a nation with such extensive poverty may feel politically-constrained and its government will not want to be accused of selling potential future wealth to global speculators and investors. Historically, of course, the country remains sensitive to any perceived repeat of its past when it was a colony of the UK.

In any case, and with justification, the Indian authorities can point to the extraordinarily high-priced real estate markets that exist in many of the country's big cities today, even without the presence and pressure of foreign purchasers – and despite some parts of the country facing unrest and other internal difficultiesd.

Mumbai, New Delhi and Bangalore have the most expensive commercial and residential property markets in the country; their house prices in particular are comparable to New York, London and Tokyo, thanks mainly to the low volume of available developable land. Despite the global recession, which has hit some export aspects of India's wider economy, the country is buoyed by an 81 per cent rise in the Mumbai stock index in 2009, so prospects for this year are considered very good. With things looking up why, some might ask, does India need foreign investors?

I think the answer is simple; it needs a global stake in its real estate, now, to stay competitive in the long term. North America, Europe and parts of the Middle East remain, for the moment at least, the most wealthy parts of the world and, as they recover from recession, they will look for new investments.

If the 'I' in Bric makes investment difficult, then those wealthy nations – and their funds, consortia and invidividuals – will quickly move on, instead, to Brazil or China or another emerging market. The last thing India needs is to miss out on a generation of investment from around the world. It should let them in, and soon.


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