Property Purchase Guide for NRI
- Definition of an NRI?
According to the Foreign Exchange Regulation Act of 1973, an NRI(Non-Resident Indian) is defined as:
An Indian citizen living outside India for the purpose of earning or running a business or building career or for any other purpose for which the staying period is indefinite;
An Indian public servant who is on posting outside India to serve in Indian missions and other governments setups operating outside India and is, therefore, an employee of the Government of India
An Indian public servant who is on deportation outside India and is working with either Governments of other countries or with regional/international agencies like the World Health Organization, International Monetary Fund, World Bank, Economic and Social Commission for Asia and the Pacific (ESCAP), etc
Employee of the State Government or Public Sector posted in a foreign branch of the office or is outside India for an official temporary assignment.
- Definition of a Foreign Citizen of Indian origin.
A person having foreign citizenship is said to be of Indian origin if:
- He has held Indian nationality at any time or
- His father or paternal grandfather have been a citizen of India according to the conditions in the Constitution of India or the Citizenship Act, 1955. But this condition is not applicable to the citizens of Pakistan, Bangladesh, Afghanistan, Bhutan or Nepal.
Buying Property in India
- Things to keep in mind while buying housing flat.
- Location, including access to facilities like transport, schools, hospitals, market, business district, entertainment centers, hotels, restaurants etc. Pollution level of the area is another factor.
- Quoted area of the property, i.e., carpet, built up area and super built up area
- Available space for car parking
- Quality of the structure, i.e. the material used in construction
- Reviews of the previous clients of the builder/seller
- Supply of water, electricity and other utilities
- Cost value: property price, transfer charges, registration fees, stamp duty, society charges, costs of utilities like water, electricity
- Resale value of the house
- Any advantages/disadvantages of the property
- Checklist for buying residential property
- Changing market trend for property rates in that area and the last transaction made w.r.t. that property
- Ask for copies of layout plan and building plan approved by the concerned authority with clearly mentioning the number of floors allowed
- Ensure clearance of the property from the municipality, water, electricity and pollution departments
- Always ask for copies of all documents related to the ownership and registration of the property being purchased. Get the provided documents checked by the concerned authority, by availing services of an advocate. Any loan taken on the property must be cleared before finalizing the deal. Confirm the survey, village and registration number as these are required for the purchase to be finalized. The title of the seller to the property must be clear and marketable.
- Confirm all the charges to be paid at the time of purchase including registration fee, transfer charges and stamp duty as well as outgoings to be paid like utility charges, maintenance charges, property tax and society charges.
- Are the NRIs required to have consent of the Reserve Bank to purchase immovable property?
No. The consent is not required for residential property. NRIs need to get permission only for buying farmhouse or plantation/agricultural property.
- For the immovable property, how is the purchase consideration met under the general permission?
The purchase consideration should be paid either out of funds from any non-resident account of an Indian bank or through normal banking channels out of inward remittances in foreign exchange.
- Are the NRIs bound to own only a certain number of residential properties in India?
No, the NRI can own as many housing properties as he wants but repatriation is allowed on only two residential properties. (Repatriation is the process of converting foreign currency into local currency)
- Guiding principles for NRIs/Foreign citizens of Indian origin to buy farmhouse or agricultural property or plantation property.
Requests for buying of farmhouse/agricultural property/plantation property by NRIs or foreign citizens of Indian origin may be made to the following:
The Chief General Manager,
Reserve Bank of India, Central Office
Exchange Control Department
Foreign Investment Division (III)
Mumbai 400 001
- Is it compulsory to seek permission from Reserve Bank for any property sale?
No, the Reserve Bank allows general permission for sale of one’s property. However, if the buyer is a foreign citizen of Indian origin, the funds towards the purchase consideration should either be remitted to India or paid out of balances in non-resident accounts maintained with Indian banks.
- Can sale proceeds of such property if and when sold be remitted out of India?
In case of sale of immovable property in India by an NRI or a PIO, the authorized dealer may agree to repatriation of sale proceeds outside the country, but the case is only valid for property other than farmhouse/agricultural property/plantation property. The abovementioned case is allowed only if the following conditions are met:
At the time of the sale of property, the Exchange Control Rules/Regulations/Law in force or the provisions of the Rules and Regulations under the Foreign Exchange Management Act, 1999 allowed the acquisition of property by the seller;
NRIs/PIOs can effect remittance of sale proceeds of immovable property in the country regardless of the period for which the property was held. However, the sale proceeds allowed to be repatriated should not exceed the foreign exchange brought in India to acquire the property under discussion;
If the property sold is residential, the repatriation is limited to two such properties but the limit is only if the house/flat/apartment was bought from an NRE account;
The amount to be repatriated abroad should be less than the total amount paid for acquisition of the immovable property in the foreign exchange received through normal banking channels or out of funds held in FCNR or NRE Account. In case of investment out of NRE Account the amount to be calculated as foreign currency is equivalent value as on the date of payment for acquisition of the said property.
- Guidelines of the Reserve Bank of India for NRIs seeking housing loans.
- The loan amount must be less than 85% total cost of the residential property
- The buyer’s own contribution can be met by transferring funds from abroad through any of the following normal banking channels: your NRE account and/or NRO account and/or NRSR account in India
- Loan payment, actual as well as interest amount, must be made only through the following normal bank channels: your NRE account and/or NRO account and/or NRSR account in India
- Can an NRI seek loan from an authorized dealer for the purchase of residential property(house/flat/apartment)?
Yes, the authorized dealers are allowed to grant housing loans to NRIs for residential intention on their return to India subject to certain conditions. The period of return of loan(actual as well as interest) must be less than 15 years. • Reimbursement of the loan (principal as well as interest) to be remitted from abroad only through normal banking channels: your NRE account and/or NRO account and/or NRSR account in India.
- Can the dealer grant housing loan if the principal borrower is an NRI and has Indian close relative is a co-applicant / guarantor or the property jointly owned by the NRI principal borrower and resident co-applicant?
Yes, loans in rupees can be reimbursed by a close relative of the principal borrower living in India.
- Documents required to be submitted for the application of housing loan.
- Copy of the labor contract duly countersigned by your employer along with its English translation
- Recent salary certificate (English translated) specifying name (as on the passport), passport number, joining date, designation, benefits and income.
- Copy of the monthly statement of bank account for the previous 4 months
- Copy of the passport showing stamp of resident visa
- Copy of the labor card/identity card
- Property related documents
- Can an NRI obtain loan against the security of immovable property in India? Are there any limitations applied on using of loan amount?
According to rules, an NRI can obtain loan from an authorized dealer against the security of immovable property, provided the following conditions are fulfilled:
- The loan amount should only be used for fulfilling personal or business needs; and
- Loan amount must not be used for prohibited activities like;
- business of chit fund, or
- plantation or agricultural purposes, or
- in real estate business, or
- farmhouse construction, or
- trading in Transferable Development Rights (TDRs)
- Loan availed cannot be transferred outside India
- Reimbursement of loan must be made through direct payment from overseas or by debit to NRE/FCNR/NRO account or out of the sale profits of assets against which loan was granted like shares or securities or immovable property
- Incentives for NRIs, PIOs and foreigners planning to invest in Indian real estate industry
In March 2006, the FDI announced relaxation in construction development sector for NRIs, PIO and foreigners. This offers the NRIs equal opportunities for investment in the real estate sector of India. The revised guideline require that the site must be developed, constructed upon or it must fulfill the one year development criteria before being sold.
- Now, the NRIs, PIOs or foreigners can buy a land, construct upon it or develop it and then sell the developed land or the constructed structure
- Through automatic route, FDI can also flow in for the housing sector as well as for infrastructure development, townships, housing, and commercial area
- The restriction on minimum area of land, minimum number of units that was previously in action, has now been removed
- Minimum constructed area required is 50, designated area is 25 acres
- Is there any time frame for completion of the construction development work?
The laws are lenient on the completion time period issue. However, they require you to complete at least 50% of the construction work within five years starting from the day of getting clearance. Under normal circumstances the construction work can be completed within three years from the day of clearance. This norm is made to keep a check on questionable people investing in India.
- What is an automatic route?
The automatic route simplifies the tiresome investment process as there is no need to visit the Foreign Investment Promotion Board anymore. The approval from the Reserve Bank of India is also not required in the automatic route. The overseas investments in India have seen a boost due to the ease of paper work and relaxation in different formalities for the NRIs/PIOs/Foreigners.
- What characteristics must be considered by an NRI/PIO/Foreigner before investing in Indian real estate sector to make their projects smooth and profitable?
Before investing in real estate in India, an NRI must decide the type of investment, for example residential, retail or office space. Real estate firms or Legal firms can be valuable in this regard for their services of consultation.
- For smooth process of clearances and registrations, what sequence of step can be followed by a foreign investor? Who can be consulted in this regard?
The steps of easy process depend a lot on the segment of your investment. It helps to estimate the future state and to have knowledge of the available services. For example, for an office space investment, the steps would be:
- Get consultation services for suggestions of the right city for the type of office
- Pen down your requirements. Estimate your investment budget
- Make a rough estimate of the profit you are expecting from the investment. The yield that has evolved from distinct parameters ranges between of 8 – 8.5% to 12% for office space and 4% – 6% in residential investment
- An important factor is whether the purchase is being done for investment purpose or for development/construction purpose. Another deciding factor is the local conditions of demand-supply in the area.
- Is single window clearance possible to get in India?
Due to the involvement of several authorities, single window clearance is difficult for any real estate project in India. If the building has multiple stories, you need to get clearance from town planning authorities, clearance on design, clearance on elevators, clearance from firefighting agencies, etc. However, the policies are being revised to make the process more simple and transparent.
- The new FDI norms state that the minimum investment has to be USD 5 million for 51% shareholding. Does this include funding of subsidiaries as well?
If you have a wholly owned subsidiary by a foreign company then the minimum capitalization norm is USD 10 million.
If you have a joint venture, the ratio 74:26 or 51:49 is immaterial. For a joint venture, the minimum capitalization is USD 5 million in foreign exchange.
This minimum amount of foreign exchange is required to arrive within six months, estimated from the date of start of business. These six months can be used to bring that money into India.
- How the monitoring authorities and sanctioning authorities different in India?
In a few states of India, the ultimate monitoring authority is the Municipal authority. Whereas, in smaller states and in non-urban localities, the role of monitoring authority is performed by the town and country planning corporation. In urban regions where most of the development takes place, the power of giving the final permission and sanctioning drawings and plans rests with the municipal authority. The municipal authority also gives clearances on electricity, water supply and other utilities.