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Ashwin Vora, a junior executive at an IT company, has made a down payment for a flat in Kharghar, Mumbai’s newest residential district. He forecasts a profit of 20 per cent over the pre-selling price when the condominium is completed in two years.
N Mahesh, a doctor living in London, has invested a few years’ savings in land to be developed as an IT park. He also owns his parents’ home in India and another property there. Both have nearly doubled in value over the past three years. He is confident that his latest venture will earn at least 40 per cent profit after two years.
The two men are separated by distance and differ in wealth and way of life. But both agree on one thing: there is money to be made at home.
The number of wealthy households is expected to double to 400,000 in three years’ time and the middle class is growing equally rapidly. Similarly, the Indian diaspora has created a large, increasingly wealthy and influential ethnic community in the UK, the Middle East and the US. A major source of remittances and investment inflows, these Indians abroad who earn an average $35,000 annually are responsible for about 20 per cent of foreign direct investment into the country.
A recent HSBC study on the mass affluent in five Asian cities, including Mumbai, revealed three trends that closely mirror investment preferences of non-resident Indians sending funds back home.
Both groups are betting on property, stocks and business ventures.
Choices for the average Indian investor remain relatively limited, so it is not surprising that close to 90 per cent of respondents in the HSBC study still keep their money in rupee savings. However, more options are emerging for both local and non-resident Indians (NRIs) to grow wealth within the country’s borders.
More than 50 per cent of study respondents have bought local property. Three out of 10, perhaps enthused by recent exponential returns in equities and access to more investment instruments, are into the stock market, mutual funds and bonds. Close to a third have taken the entrepreneurial route, aspiring to be the next Ambani, Mittal or Tata.
In terms of aspiration, 27 per cent plan to buy local property and a quarter intend to invest in stocks and bonds to grow their wealth. Nearly half of respondents said they would prefer to use funds to start a business rather than to buy luxury goods, take expensive holidays or secure guaranteed school admissions.
More than $3bn of NRIs’ excess cash is parked in tax-free rupee and foreign currency accounts. These deposits are popular because the funds are freely repatriable and earn excellent deposit rates. More experienced investors are investing in shares of Indian companies through the stock exchange, domestic mutual funds and government.
Opportunities are opening up for the entrepreneurial NRI as direct investment into Indian companies are now permitted in all but a few sectors of the economy. NRIs can also invest in companies, proprietorships and partnerships on the basis they may not repatriate sale proceeds from such investments. These various investments may be made without any prior government approval.
Real estate investments in India, ranging from residential properties to big-ticket real estate projects, are popular for NRIs. New regulations have encouraged overseas Indians to forge strategic alliances with global real estate groups testing the markets.
NRIs can also acquire, by way of purchase, inheritance or gift, any immovable property in India, other than agricultural land, plantation property or farmhouse.
There is now virtually no restriction on NRIs investing in Indian property from funds received through normal banking channels. The Reserve Bank of India has recently done away with the 10-year lock-in period for remittance of sale proceeds of immovable property. Recurring rental income earned on letting out property is also freely repatriable.
The author is group general manager and chief executive of HSBC India.