Real estate Investment for NRIs
The rupee has depreciated further by about seven per cent since one year ago and by almost 39 per cent since the last five years, making it cheaper for people earning in dollars and spending in rupees. In the fiscal of 2012, according to the World Bank, at $69 billion India received the highest amount of remittance among all the other countries.
Accorded the present scenario – stagnant realty prices in the Indian realty sector coupled with a depreciating rupee should ideally attract non-resident Indians (NRIs) into buying property in India. According to the director of a New Delhi-based real estate firm, the huge run-up in property prices which was created in 2011 and 2012 is now gradually being consolidated.
In recent times, there has been significant accession in enquiries from NRIs for property within India. NRIs belonging to the categories of ‘High net worth individuals’ (HNIs) along with people from the middle income group have been generating interest to seize this opportunity. As per the chief executive officer of ASK Wealth Advisors Pvt. Ltd, these NRIs either plan to come back at some uncertain point of time or prefer to have their relatives use the facility.
With all the above working in favor of the Indian realty sector, there are however certain points that should be considered before buying a property within Indiaw.
Which type of properties should be bought?
The Reserve Bank of India (RBI) by the virtue of Foreign Exchange Management Act (Fema) regulates property purchase in India by NRIs. NRIs can purchase either residential or commercial properties, while the purchase of plantation property, agricultural land and farmland are prohibited; although, properties which fall under these categories can be inherited. If such properties were already held by a person before becoming an NRI, the person can continue to hold them. Properties falling under these categories can only be sold to a resident Indian citizen. Multiple commercial and residential properties in India can be purchased by NRIs. Additionally, any prior permission for such transactions is not required. The property or properties can be held by the NRI’s in joint names with another NRI or NRIs. However, FEMA does not permit the land purchased by an NRI to be held along with an Indian resident or a foreign national either. The foreign address of the NRI should mandatorily be mentioned within the purchase agreement.
Documentation required:
As a rule, the list of the basic documents required for registration of immovable property would include a passport’s copy, permanent account number card copy, photographs and proof of address if it is different from the address mentioned in the passport. The bank details of the customer would also be needed.
Funding process:
An NRI has the option to make the payment either through rupee-denominated non-resident ordinary (NRO) or via non-resident external (NRE) and foreign currency non-resident (FCNR) accounts. Loans may also be availed from any of the Indian bank within India or from a branch of any Indian bank within the NRI’s country of residence.
Exit options :
Exit options should be made available and feasible for NRIs as certain restrictions confront them while selling a property. Due to this NRIs should extensively consider their exit options before making such investments. NRIs have the option to sell their properties to either of resident Indians, Persons of Indian Origin resident outside India or to Indian citizens resident outside India.
Furthermore, in accordance with the guidelines of Fema, each year only $1 million can be repatriated if the initial investment was made from the rupee-denominated NRO account. Never the less, if the investment was made using either FCNR or NRE account, then the initial investment amount can be repatriated at one go, without any cap.
To add to the list of impediments, NRI’s are also subjected to the restriction that of repatriating sale proceeds of maximum two residential properties within their lifetime. The sale proceeds of two properties is generally well above and over the $1 million limit for every fiscal. Yet, only $1 million can be repatriated out of the profits made each fiscal. The rest of the amount is required to be within the NRO account and/or invested within India.
To the extent of concerning taxes, in case the property was held for at least three years and if it is a long-term capital gain then apart from surcharge and cess, a flat twenty per cent tax is levied.
However, in the case of a short-term gain, the tax would be applicable according to the slab rate in addition to the surcharge and cess.
Investments in realty require meticulous planning as well as follow up. The depreciation of the Indian rupee need not be the sole reason for buying a property in India.
