Non-resident indians

In recent years, non-resident Indians (NRIs) have played a very important role in transforming the Indian real estate market. NRI investments in real estate offer the advantage of repatriation of the capital invested and even the rental proceeds under the circumstances prescribed by RBI.

Sreerosh has several interesting projects and proposals for NRIs with special focus on land appreciation and rental reforms.

Who is an NRI Investor?
An NRI (Non-Resident Indian) is a Person of Indian Origin (PIO) and can own both residential as well as commercial properties in India and there is no restriction on the number of properties that can be bought.

However, they cannot purchase/own any agricultural land, farm house and plantation property unless it is gifted or inherited. In case the property (irrespective of its nature) is acquired when you were a resident of India, you can sell or build on the property without the approval of the Reserve Bank of India. However, if you wish to sell it, you must be a resident citizen of India.

What should be the currency for transaction?
The monetary transaction must be in Indian rupees (INR) and through normal banking channels using an NRI account. Indian financial institutions give rupee loans and so the same needs to be repaid in rupees only.

Can NRIs opt for loans in India?
The NRI investor can raise finances from financial institutions to purchase an apartment.

Lenders can fund an NRI purchase provided the candidate is eligible and the property papers are clean. According to RBI norms, a maximum of 80% of the value of property can be funded by a financial institution. Rest has to come from the NRI's personal resources.

What should an NRI Investor watch out for?

• Title deed should be clear- in original, and that it is solely in the name of the seller. Ensure that the title papers of the property are sound, especially if it is inherited or jointly held
• A bank release in case it was at any point of time under mortgage
• If the seller is unable to produce the original and shares a photocopy, there is a possibility that a loan has been taken against the property. Initiate a thorough check to avoid the pitfall of the sale being challenged at a later stage
• Ascertain that the property has secured all clearances required by law, such as environment and municipal clearances and the authority to transfer the undivided share of land to each apartment owner and the entire plot to the society upon completion of the project
• For projects under construction, insist on these documents to ensure that your investment is safe. It will be wise to get the papers verified by a lawyer before going ahead. Project documents are normally certified by legal advisors before financial institutions can give loans for flats. They scrutinize original title, encumbrance certificates, building permits, land ceiling clearances and other relevant documents
• The buyer-builder agreements should be equitable and should not contain clauses that are volatile of an investor's rights and interests
• A no dues certificate from the seller at the time of purchase to ensure there is no water, electricity or any other pending bills with the authorities
• For new constructions, land title should be clear and the builder should have taken all approvals and permits from the civic authorities in terms of construction

What are the other factors that can influence loan eligibility of an NRI?
Education qualification and profession play a role in deciding your loan eligibility. Like, only graduate NRIs can avail home loans in India.

Can an NRI get overseas fund to buy property in India?
NRIs can use is to get funding overseas where interest rates are lower and is a good idea especially if you are still overseas and have income accruing there.

How can an NRI make remittances?

• All transactions must happen through the banking channel, repayment has to be done by inward remittances. You can directly get the money remitted from NRO/NRE account in India or issue post-dated cheques or Electronic Clearance Service (ECS) from your NRE, NRO or Foreign Currency Non Resident (FCNR) account
• In case you let out the property you can use the rent to repay the loan as well
• Cheques issued from a relative's local account can also be used to make the loan payments

Can an NRI use Power of Attorney for all the transactions?

• If you are buying an under-construction property, your developer may ask for a power of attorney (PoA) favouring them. This is not unusual and would make documentation work slightly easier and quicker
• A PoA can be given to execute any contracts, deeds as well as mortgage, lease or even sell. So make sure the kind of authority you are giving to the person through the PoA. Just get it worded properly by a professional lawyer you trust

What is the procedure for purchase of property?

• Having identified a property after due diligence and negotiation, you will arrive at a price at which the sale is agreed
• Subsequently, a sale agreement must be drawn on a Rs 50 stamp paper, which will mention the final amount, advance payment, time limit to pay the due amount and details of instalments
• Once the sale deed is completed, you need to get it registered at the Sub-Registrar or Sub-District Magistrate. The overseas buyer's foreign address has to be mentioned in the sale agreement
• He/She can appoint a representative in India (with a power of attorney) to act on his behalf. The power of attorney should be notarized with the Indian consulate in the buyer’s country of residence
• The property can be registered in the name of the NRI and the holder of the power of attorney can sign on his behalf by producing a copy of the document to the appropriate authorities

What are the tax implications?

• Apart from the registration cost and stamp duty, a service tax is also levied on the transaction
• It depends upon the property you are buying. If you are buying a property that is being constructed by a builder, you will have to pay a service tax of 12.36% on 25% of the total price for apartments up to 2,000 square feet and 30% for bigger apartments
• For a built-up property or a single residential unit, stamp duty is to be paid on purchase of the property. The stamp duty payable varies from state to state and is different for properties in rural areas
• There are slabs for payment of stamp duty which you need to know
• A registration fee of 1% is applicable for all property transactions