The good thing about non-resident Indians (NRIs) buying property in India is that over the years, due to consistent demand, the sector has become organised. Both financial institutions and developers have systems to ensure that the process is smooth. There are rules and regulations to deal with almost every eventuality, including the fact that you cannot visit the property or the bank again and again.
For some NRIs, buying a property is a decision based on investment. They may not even see the property before selling it off a couple of years later. For others, buying a home is an emotional decision as they would like to retire and go back to their home town eventually.
The Reserve Bank of India (RBI) governs such transactions and they fall under the purview of the Foreign Exchange Management Act (FEMA).
Prices: In general, any demand drives up prices. Due to the downturn in the US, when returning NRIs bought property in India in 2008, unsubstantiated statistics put the increase in demand to about 15 to 20 per cent. Prices went up correspondingly.
Many developers focus on the NRI sector, creating entire townships with a view to sell them to this market. Property experts say that the prices are comparable to others in the area. "While you have to be careful of cheats and check credentials and documents, most builders who focus on NRIs don't just ask for higher prices. There are many other differences too. The amenities are often what they are used to and, more importantly, the builder would facilitate investors selling the property later in case of under-construction buildings," says Arjun Sharma, a real estate agent based in Mumbai.
Financing your house: If you want to self-finance your house, the foreign direct investment (FDI) policy permits up to 100 per cent FDI from foreign/NRI investors. You can fund the purchase by funds remitted to India from abroad through regular banking channels or through NRE (non-resident external), NRO (non-resident ordinary) or FCNR (foreign currency non-resident) accounts.
Loans: NRI loans differ from loans for resident Indian citizens — in terms of tenure, documents required and repayment.
Contrary to popular perception of NRI loan rates being higher, the difference in the rate for NRIs is usually not more than 0.25 per cent to 0.50 per cent. It is possible to get about 85 per cent of the cost funded by a bank. NRI loan tenures tend to be shorter — seven to 15 years — driving up instalment costs. Usually, up to 36 times of the gross monthly earnings of the applicant may be issued as loan.
For a loan, you need an account with the lending bank in India. Most banks earmark deposits held in addition to the mortgage on the property. The documentary requirements are similar to those applicable to local residents — personal documents (photographs, passport and visa copies etc), financial documents (appointment letter, salary slip, bank statement etc) and property documents (latest sale deed with previous chain link, allotment letter, payment plan and receipts for properties under construction). Most banks also prefer if you have a close blood relative in India, who can be a co-applicant to your loan.
As a practice, the first mortgage of the property is in the bank's name. For properties under construction, additional security in the form of a third-party guarantee may be required.
Many housing finance companies have overseas offices to facilitate loans. ICICI bank, for instance, has representative offices in Dubai, New York, Bahrain, Singapore and the United Kingdom.
The law: An NRI can buy residential or commercial property in India but not agricultural land, plantation land or a farm house. He cannot even acquire them as a gift. He can, however, inherit them.
While there is no limit to the number of properties you can buy in India or in your country of residence, only one of them will be considered as self-occupied, hence not taxable.
Property agents advise giving a power of attorney to a person resident in India for completing formalities such as registration, possession and execution of agreement of sale. A PoA can be given to execute all contracts, deeds, mortgages, leases and sales. The document needs to be attested by an authorised official of the Indian embassy/consulate or a trade commissioner in the UAE.
Often developers request for a PoA in their favour and experts say that it is best to do that for specific purposes, such as only for a sale, lease or registration. Says Yusuf Khan, a Mumbai-based agent, "The developer or his authorised housing agent is the best person for PoAs, even if you have to give specific ones each time. Relatives or friends with blanket PoA are often too busy to look out for your best interest."
If you sell your property, the proceeds can be repatriated provided the amount does not exceed the amount paid to acquire the property in foreign exchange received from overseas, the amount paid from a FCNR account, or the foreign currency equivalent of the amount paid from the funds held in an NRE account.
TIPS
What to know before investing in property
• Many chartered accountants in India stop filing returns once your NRI status is established. Even if you plan to take a loan some years down the line, continue filing returns. A clear tax record goes ensures smooth processing of loans. Additionally, if you are paying taxes for income earned in India (including from fixed deposit interest), you can claim tax rebate for the home loan.
• It is a good idea to take a loan even if you don't need it, as due diligence on the bank's part requires visits to the property, checks to confirm that all papers are in order, and establishing legal status of a property.
• Visit property fairs held in the UAE. But research corresponding rates in that area before buying. • Plan before you visit. Do get in touch with a few agents and shortlist properties you like. • Make a list of documents that may be needed, and create files with multiple copies. Your PAN (permanent account number) card, employment and income-related documents, proof of no dues on any other loans and a set of photos can make life easier.
— S.S.
