In the aftermath of the Sub Prime crisis in the US and the sinking real estate segment in the EU nations, NRIs have been looking homewards for investing in real estate in past couple of years. Additionally the depreciation of the rupee in the last year has further fuelled the demand for real investment by NRIs in India. In some of the Middle East nations as well as places like Malaysia and Singapore the domicile restrictions are forcing NRIs working there to secure a home back in India when the going is good. But before investing in real estate in India the NRI must be clear about the actual benefits, the options available, the procedure involved and pitfalls that may accompany such a financial decision.
Why buy a House in India?
Currently there are several extremely compelling reasons for NRIs to buy a house in India:
- The depreciated rupee presents an ideal situation for smart investment in Indian real estate.
- The procedure has been greatly simplified for encouraging NRI investment in real estate. (Refer Foreign Exchange management (Acquisition and Transfer of Immovable Property in India) Regulations of 2000 and additions to this regulations vide RBI master circular No. 4/2012-13 dated 2/7/2012 applicable for Acquisition and Transfer of Immovable Property by NRI/Persons of Indian Origins.)
- Wonderful offers being floated by the CREDAI (Confederation of Real Estate Developers Association of India).
- Tax benefits that are especially applicable for NRIs investing in real estate in India.
- The inherent security of real estate investment that is offered by Indian markets.
What can a NRI buy in Indian Real Estate?
The RBI and FEMA regulations have categorically specified the kinds of investment that is permitted for NRIs in the real estate segment. A NRI has the permission to carry out the following with regard to real estate in India:
- Acquire any immovable property other than agricultural land, plantation property and farm house in India.
- Acquire any immovable property as described above by way of gift from a resident Indian, citizen of India residing outside or Person of Indian Origin.
- Acquire property by means of inheritance.
- Transfer by means of sale of immovable property described above by means of a sale to a person residing in India.
- Transfer agricultural property, plantation land or farm house by way of gift to Indian citizen who is residing in India.
- Transfer by way of gift residential or commercial property by means of gift to any person who is a citizen of India whether residing within or abroad or a Person of Indian Origin.
What are the Financing Options?
As on today there are several financing options for NRIs looking to buy a house in India. The RBI has stipulated the following norms for NRIs to buy a house in India.
- The home loan amount for a NRI is restricted to a maximum of 80% of the cost and the balance has to borne directly by the NRI.
- The remittance of the down payment by the NRI can be made directly from the nation of current residence through normal banking channels such as the NRE/NRO account in India.
- The repayment of the principal as well as the interest amount to the financing agency must be done through similar channels only.
What are the Tax Implications for NRIs Buying House in India?
The NRI will have to pay the stamp duty and the registration fee while purchasing but will have no additional tax due at the time of the purchase.
- He shall be able to avail the same benefits as resident Indians on the interest paid towards the house loan.
- In case the property is leased then the tax procedure becomes slightly more complicated. The income received by this means shall be treated as ‘Income from Property’ and hence the standard slabs will be applicable with the standard deductions also. For NRIs residing in nations where worldwide income is taxable such as the US, the individual will have to pay the tax applicable in that country unless there is a Double Tax Avoidance Agreement with India.
- As a special benefit all amount paid towards the interest of the home loan repayment is deductible from the taxable income for NRI without any upper limit.
- In case the NRI sells off the property he shall be liable for the capitals Gains Tax as applicable under the IT Act.
What to watch out for when buying House in India?
While investing in real estate in India can be a smart move there are several pitfalls which one needs watching out for in order to secure the investments.
Property Title: The seller must have clear title of the property and the required authority to sell it especially in case of inherited house or a joint property.
- NDC: There should be no outstanding civic authority dues or electricity/ water bills pending at the time of sale. A No Due Certificate to this effect must be produced by the seller.
- Bank Release Letter: In case the property had been mortgaged for a loan or provided as a direct/indirect collateral security for any loan, then the seller must be able to provide a release letter from the concerned bank stating that all outstanding loans have been settled and the documents have been releases.
- Permits: The stated house must have all the required approvals and permits from concerned civic authorities with regard to construction and layout.
- · Litigation: The house under consideration must be verified for any kind of pending litigation.
How to get a safe deal?
The NRI may often find it quite daunting to decide on the right property while deciding to invest in a house in India. The traditional manner is to request friends, relatives and acquaintances to search for the right one. However currently there are many reputed real estate developers who are offering complete services in this regard for NRIs in order to attract investment. Many seminars and Expos are being organized in different parts of the world to woo NRI customers by these developers. One can avail their facilities and select the properties on offer. The reputed developers will usually offer a clear title and litigation free property though this might cost a bit more. These developers also have schemes to take care of the house in terms of maintenance as well as leasing post purchase.
A word of caution in this regard is that NRIs should not completely rely on such Expos and seminars that are held abroad to decide on buying the right house. The agents of the developers may at times provide incorrect and misleading information regarding the true value and prospects of the property that they try to sell. They might be trying to palm off projects that failed to take off in domestic market. Cross checking such claims with someone you trust back home in India can save many complications at a later stage. Careful research undertaken to select the right house to buy in India is the beginning of a really great investment idea for NRIs today.