India needs an overhaul

Real Estate agents in India hope restrictions on foreign investment will be lifted sooner rather than later. They are lobbying for change.

Agents are being bombarded with inquiries from would be investors interested in India's booming housing market. According to Jaideep Singh, head of the India desk at Knight Frank, this can only increase.

'In India the middle classes have made some money now and want to spend it. As a result a mortgage system has started to develop. The stock market is in a good state at the moment, so there a lot of good reasons to invest,' he said.

But it is still difficult for foreign investors to take advantage of the Indian property market. Under current laws, foreigners who are not resident in India cannot buy property in the country and, because of this, they must buy through local people, Mr Singh explained.

'We believe these restrictions should be relaxed. We hope pressure will build for a change sooner rather than later,' he added.

It can't come too soon for many potential investors who do not want to be resident full time in India. A recent survey by the Association of Foreign Investors in Real Estate named India as one of the top three destinations for investment.

The drawback to Indian property investment has been government policy. Real estate is one of the categories of Foreign Direct Investment (FDI) to which India is opening its doors. But it remains much easier for Non Resident Indians (NRIs) to buy property in India than for persons not of Indian descent - no western country has such racially discrimatory laws.

Legal advice is essential and there must be prior approval from the Reserve Bank of India (RBI). Approval is normally available for: substantial investments (over $10m USD), purchases in Special Economic Zones (SEZ), purchases on serviced plots and houses held on leases of 5 years or less.

Transaction costs associated with purchasing property are low - only about 2% of the purchase price. With respect to buying a new property, developers will often sell the property prior to completion to allow the buyer to avoid stamp duty.

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