The Ultimate NRI Guide to BUYING PROPERTY in India

Can an NRI buy property in India?

The most simple answer to that question is: yes. According to FEMA (Foreign Exchange Management Act) regulations, Non-Resident Indians can purchase immovable assets in India without requiring special permissions from the RBI. Here are a few guidelines to adhere to:

• An NRI buying property in India does not have to inform the RBI of their decision to invest in a property, nor do they have to involve the RBI at the final stage when they have completed the transaction. There is also no limit on the number of properties for an NRI buying property in India.
• There are certain do’s and don’ts for NRIs investing in Indian realty. NRIs are only allowed to purchase residential and commercial properties in India. An NRI buying agricultural land in India, as well as farmhouses and plantations, is restricted as they don’t fall into those two categories.
• If an NRI buying property in India still wants to invest in one of these forms of real estate, they can submit a special request for the same to the RBI. Such instances are reviewed on a case-by-case basis by the RBI, taking into account the circumstances around the particular request. Under special circumstances, NRI buying agricultural land in India can be allowed.

Is NRI investment in Indian Real Estate a good deal?

Before you make a commitment to buying property in India, you might want to make sure that you’re making the right investment decision. There are three main avenues of investment individuals are faced with: real estate, stocks and gold. To help you decide which option will give you the maximum returns on your investment, here’s a comprehensive comparison between all three.

Real Estate Vs. Gold – Why Real Estate Wins

In India, traditionally gold and real estate have been two primary investment options for best returns. However, choosing between the two has always been a fairly difficult choice for most investors.

Here are few reasons why real estate proves to be a much better investment option than gold in the long run:

Steady Income:

Rental income still remains one of the best ways to generate passive income. Investment in commercial or residential real estate helps achieve this goal. While gold can be “worn”, it does not bring in a steady income, compared to real estate which nearly guarantees cash flow through rental returns.

Tax Benefits:

Home loans taken to purchase real estate become eligible for tax deductions on their interest and principal repayments upto a certain limit. This further increases the long-term gain on the property investment. An investment in gold, on the other hand, does not come with any tax benefits.

Leverage:

A home worth Rs. 70 Lakhs can be bought with a down payment of just Rs. 14 Lakhs (this could be as low as Rs. 7 Lakhs for buyers with an exceptionally high CIBIL score), while the balance amount can be obtained fairly easily as a home loan from banks and financial institutions. Home loans are also the cheapest loans available in the market and reduce the debt burden considerably as compared to other loan types. Purchase of gold, on the other hand, entails a 100% upfront payment and neither banks nor financial institutions provide financing to allow wealth creation through gold purchases.

To sum up the comparison of gold vs. real estate, gold would definitely make a good purchase as a fashion accessory or from the perspective of adding some diversity to one’s investment portfolio. But when you’re looking for larger returns, property investment would be a much better option for the informed NRI investor for real estate.

Real Estate Vs. Stock – Where to Invest?

The stock market and real estate are marked by distinct differences which set them apart. Here’s a comparison of the two investment vehicles considering all the factors in their favour and against.

Areas where Real Estate scores:

Cash Flow:

One of the biggest advantages of Real Estate is the constant cash flow it provides on a monthly basis. When renting a house, you can expect a constant cash income over a long period of time. Stocks, however, do not assure income on a constant basis, but for some periodical returns by way of dividends, rights issues and bonus shares.

Market Growth:

Over the past few years, Real Estate has seen a steady growth providing returns of about 20% especially after the price re-ratings that occurred between 2003 and 2008. The stock market is highly prone to fluctuations. Unless you are very adept at identifying high-quality stocks, there is no pre-existing pattern that can help you find out if a particular stock will give you good returns or not.

Market Fraudulence:

The chances of being deceived in real estate are less provided you have done your homework because you can physically inspect your property, run a background check etc. In stocks, the risks of being cheated are higher if you do not have enough knowledge about how the market works.

Areas where stocks score:

Initial Investment:

Initial investment in Real Estate is in most cases a minimum 20% of the value of the property. When buying a 2-BHK flat worth 40-50 lakhs, a minimum margin money of around 8 lakhs is still needed. The initial investment required in stocks is very low, sometimes even a few thousands.

Investment Options:

Real Estate investment is restricted to only two broad categories i.e. residential or commercial. Stocks, however, have a very diverse range of avenues to invest. With stocks, you can invest in a variety of industries and ensure that your investment is protected even if one industry does not perform well.

Liquidity:

In real estate, converting your property to liquid cash is a difficult procedure as it is time-consuming and dependent on how quickly you find a customer to purchase your property. Most stocks, on the other hand, are very liquid, with the money being credited to your account within three working days.

In general, when it comes to making a stable investment, real estate does seem the more obvious choice. An NRI buying property in India is largely protected from the fluctuations commonly seen in the stock market. So if you’re wondering if stocks or real estate is the best investment, you shouldn’t think twice about real estate.

What are the documents required to purchase a property?

Once you decide to invest in Indian real estate, you’re ready to jump headfirst into the whole procedure for an NRI buying property in India. The most important step to ensure that this process goes smoothly is having all the necessary legal documents required for the purchase of property in place. Having proper documentation also prevents any property disputes from arising. We have compiled a list of necessary documents that an NRI buying property in India requires.

Documents required in procedure for NRI to buy property in India:

Indian Passport or Overseas Citizen of India (OCI) Card:

One of the most important legal documents required for purchase of property for an NRI in India is an Indian passport. However, if you hold a passport of a foreign country, then you need to have a Person of Indian Origin (PIO) card. If you are an individual who is not an Indian Citizen but eligible to become an Indian citizen, i.e. if one of your parents is an Indian, you will need an overseas citizen of India (OCI) card. You can apply for the OCI card in the Indian embassy of the country you live in.

PAN Card:

As you will be expected to file income tax returns for your investment in India, you must have a Permanent Account Number (PAN) card. The PAN card is an indispensable part of the procedure for an NRI buying property in India. You can get a PAN card easily in India by applying for the same online.

Power of Attorney Certificate:

If you are an NRI buying property in India, power of attorney needs to be granted to someone for making all your investment decisions on your behalf. Having a reliable power of attorney will help in registration of your property, execution of the sale and possession. Think wisely before choosing your power of attorney because you need to ensure that they always act in your best interests. Prepare a clear power of attorney certificate with the help of a lawyer, and get it signed by your power of attorney and witnesses. You need to keep this document safely. Keeping all the mandatory documents NRIs need while investing in Indian realty ready will help the home-buying process go smoothly.

Should an NRI be physically present in India to purchase a property?

Travelling back and forth between India and their country of residence can be impossible for NRI real estate buyers. This is why, provisions have been made to ease the procedure for NRI to buy property in India. One of them is the Power of Attorney.

What is a Power of Attorney?

Granting someone Power of Attorney allows them to take decisions and sign documents on your behalf. Since they reside in India, they save you the trouble of having to be physically present. As your GPA (General Power of Attorney) needs to act in your best interests, you will need to appoint someone whom you trust completely. A PoA is useful to follow up on the construction status, physically inspect the property and be present for the required paperwork. Since being physically present at all times is impossible for an NRI buying property in India, Power of Attorney status can save you a lot of trouble.
There are three main types of PoAs based on the scope of their duties:

1. Special PoA:

Has only a limited scope of powers and is formed only for a specific type of transaction.

2. General PoA:

Can perform a wide number of functions on your behalf and usually does not have any restrictions on their powers.

3. Durable PoA:

A durable PoA has lifetime powers and can carry out duties on behalf of an individual even when they are incapacitated. Understanding these terms as well as the complete glossary of real estate terms can help you become more informed about the home-buying process.

Types of Functions Performed by the PoA:

For an NRI buying property in India, Power of Attorney status can be applicable for a wide variety of functions. Having a reliable GPA can greatly reduce time and effort in the procedure for NRI to buy property in India. For real estate investments, an individual who has Power of Attorney can:

• Mortgage, exchange, sell, lease and collect rent on your behalf.
• Manage and settle any property disputes which arise.
• Sign any documents required by banks and insurance companies for the purchase of your property and also enter into contracts and deal with bonds.
• Your PoA can also find tenants for your property and collect rent from them on your behalf.

How to Grant GPA Status?

Registering an individual as your GPA is a very simple procedure. You can do it either through an Indian consulate/embassy in your country of residence or in India.

How to Process GPA Documents Outside of India?

Most Indian consulates and embassies around the world have a uniform procedure for attesting GPA documents. One of the main differences between registering a GPA in India and abroad is that you don’t require a stamp paper when you’re registering at an embassy or consulate.

Documents Required:

• Plain piece of paper with terms and conditions of the agreement typed. The document should specify all the powers you are granting the individual and in what areas they can act on your behalf. This document should be signed only in the presence of a Consular officer.
• Original passport along with copies of all pages that have been filled in.
• Address proof of your residence
• Proof of legal validity of country of residence (such as a visa)
• 2 Passport size photographs
• Identity proof of witnesses

How to Process GPA documents in India?

In order to register a GPA in India, you need to print all your terms and conditions on a stamp paper so it can be verified by the Sub-Registrar. If you are unable to be present in India at the time of processing the documents, you can get your documents attested by an officer at the Indian consulate and send it to India. Your GPA can then get it registered in India.

Documents Required:

• Terms and conditions of agreement on stamp paper
• Proof of address (original plus copies)
• Proof of identity (original plus copies)
• 2 passport size photographs
• 2 witnesses and their identity proofs

Make sure you keep the duly attested GPA documents safe as this is required to show the validity of transactions and decisions made on your behalf.

What are the types of property and the benefits of investing in them?

According to RBI regulations, NRIs are allowed to purchase two types of real estate investment in India: Residential and Commercial. After you have decided to invest in property in India, you might be in a dilemma over which of the two options will prove more profitable. Before delving into the pros and cons of each, it is necessary to understand which properties classify as residential and commercial real estate.

Commercial Real Estate:

All kinds of buildings intended solely for business purposes, like offices, factories, industrial units, retail complexes, medical centres, hotels, malls, retail stores, warehouses and garages etc. would be classified as commercial under the types of real estate investment.

Residential Real Estate:

Apartment buildings, individual houses, housing complexes, condominiums, co-operative units, etc come under residential real estate investments. These are usually purchased by individuals to satisfy the needs of their families or to become landlords or house flippers.

There are a plethora of property options under residential real estate. Let’s take a look at a few of them.

Gated communities:

Gated communities offer the twin benefit of community living and urban lifestyle. These developments are packed with world-class amenities like sports arenas, clubhouses, state-of-the-art gymnasiums and swimming pools, to name a few. They also offer top-notch facilities like round-the-clock security and CCTV surveillance. You can choose from a variety of apartments, penthouses and row houses, as per the preferences of your family.

Independent villas:

Villas come with an old-world charm of a backyard, a front garden and a proper definition of the boundaries of a home. The advantage of investing in villas is that you are the sole owner of the plot of land as well and have the liberty of renovating your property as and when desired, without the hassle of informing your neighbours. They give you just the right amount of privacy, making it the ideal investment for families.

Apartments:

Urban families and thoughtfully-designed apartments located in the prime areas of the city have always gone hand-in-hand. Apartments give investors the option of choosing just the right fit for their families. From the number of bedrooms needed to the ideal floor, there are a magnitude of options to choose from to invest in an apartment tailor-made to your wants and needs.

What are the payment options for NRIs?

After you’ve zeroed in on the property you’re ready to invest in, the next step in the procedure for an NRI buying property in India is to sort out is how you are going to pay for it. In most cases, individuals do not have the funds to pay the entire property value upfront. If you’ve been wondering can NRI get loan against property in India, then the answer is yes. RBI has made provisions to allow an NRI buying property in India to apply for a home loan through Indian financial institutions. Here are a few pointers to keep in mind when applying for a home loan to finance your property.

Financing sources:

Any bank or housing finance company that is registered with the National Housing Board can give home loans to an NRI buying a property in India. The loan is given for purchasing land, apartments and constructing or renovating a house. There is no restriction on the number of commercial or residential properties an NRI can purchase or build. Banks cannot directly credit the loan amount into the NRI’s account; money has to be disbursed by the seller or developer of the property. All transactions relating to property purchase or sale must be done strictly in Indian rupees. An NRI buying property in India can either use their Non-Residential External account (NRE), Non-Residential Ordinary (NRO) account or Foreign Currency Non-Residential (FCNR) account for sending and receiving funds.

Home Loan Application Process Loan eligibility:

Just like residential Indians, an NRI buying property in India will be eligible for home loans if the CIBIL score, pertaining to their country’s standards, is good. Also, salaried NRIs need to showcase a minimum amount (bank-specific detail) in order to apply for a loan. NRIs need to be present in India for a specific amount of time to obtain the loan and can apply for the loan either offline or online. If they are unable to do so, they can ask their GPA (General Power of Attorney) to apply on their behalf. In this case, the required documents can be signed at the Indian consulate in the country of their residence.

Documents required:

The following documents need to be presented at the time of applying for a home loan:

• 1 passport size photograph, signed
• Copies of passport
• Copies of visa
• Power of Attorney document
• Address proof in country of residence
• PAN card

Additional documents for salaried individuals:

• Copy of appointment letter
• Copies of previous appointment letters (if applicable)
• Last 3 months salary pay slip
• Bank statement for the last 6 months

Additional documents for self-employed individuals:

• Copy of incorporation of business
• Income proof
• Partnership deed (if applicable)
• Bank statement for the last 6 months in applicant’s name
• Bank statement for the last 6 months in company’s name
• Office address proof

Maximum amount and tenure of loan:

The RBI has restricted a maximum Loan to Value amount of 85 percent (subject to the applicant’s monthly income). Loan amounts may vary between five lakhs to five crores depending on the bank. However, for self-occupancy loans, the maximum amount for servicing the home loan is one crore. Unlike the long duration given to Indian residents, NRIs are only given a tenure of five to fifteen years to repay the loan. The RBI has noticed that the average time to repay the loan amount is quicker with respect to an NRI buying property in India, as they are more financially stable and have the currency conversion advantage. Interest rates on home loans remain largely similar to those offered to residential Indians (between 8 percent and 11 percent).

Method of repayment:

An NRI buying property in India can only repay the loan using their NRE, NRO or FCNR accounts. Even after returning to their country, NRIs can repay through Equated Monthly Instalments (EMI) through those accounts. If an NRI is short on cash, a residential Indian can transfer money to the NRE or NRO account to pay off the loan. If the property is Buy-to-Let, NRIs can use the rental income to pay off the EMI. With these home financing options for NRI investors, securing funds to pay for your property is very simple. As long as you have the necessary documents in place, there should be no hassles in the home loan application process.

Are there any tax implications and regulations for NRIs investing in Indian Realty?

Like other forms of assets, for NRI buying property in India, tax implications are applicable to real estate also. However, NRI real estate buyers in India are subjected to different tax regulations than residential Indians. Knowing about the tax implications of investing in Indian real estate will give the NRI real estate buyers a better understanding of the home-buying process.

NRI buying property in India tax implications for self-use:

A property is considered for self-use when it is the only property an NRI owns, regardless of their country of residence. If you are financing the purchase of this property through a home loan, then the interest paid on it is deducted from the total taxes paid. Section 80C of the Income Tax Act of 1961 allows an NRI to claim these tax benefits. A maximum of Rs. 1.5 lakhs can be availed for a tax deduction.

NRI buying property in India tax implications for rent:

When a property is purchased with the objective of earning a secondary income through rent, then the interest is again deductible from the taxable income. However, the crucial difference in this case is that there is no upper limit on the amount that can be availed for a tax deduction. Additionally, 30 percent of the income gained through rent can be deducted for the purpose of regular repair and maintenance of the home. This can be availed even if there is no maintenance to be done. Apart from these taxes that are applicable at the time of purchase and ownership of property, there are also additional taxes to be considered while selling the property.

Is there a pre-possession checklist for your home?

Taking possession of one’s new home is a moment of ultimate happiness and pride. Sometimes, the excitement of the moment may cause you to miss out on some important checks that you must make prior to possession. To make sure the hand-over of your residence is as smooth and hassle-free as possible, we have put down a complete pre-possession checklist for your new home with all the points you should consider before you start the next chapter of your life.

Documents:

This is by far the most important of all checks as the set of documents is what will help you verify ownership and legality of construction in future, whenever the need arises.

Apart from the mandatory documents NRIs need while investing in Indian realty, here is the list of documents you must ensure you have received from the builder prior to/at the time of possession:

a) Approved Plan Layouts:

After studying the plan layout submitted by builder and architect, the licensing authority issues the approval for the same.

b) Building Completion Certificate (BCC):

Once the project consultant audits the entire project and submits the report, the licensing authority issues the BCC (Building Completion Certificate)

c) Occupation Certificate:

This is the final certificate issued by the licensing authority and only after the issue of this Occupation Certificate, water connection is provided to the newly built home. It is also important to be able to sell or transfer your home to another person.

d) Original registration deed and other documents:

Original registration documents, parental documents, drawings, concerned authority approvals and other similar documents are generally submitted to the association. It is advisable to get a copy of these and a complete breakup of the common area as well.

Interiors:

Approaching the top interior designers in Chennai and setting up a new house with the latest home decor trends is on every homeowner’s to-do list. However, here is a list of elements you need to check before you start your mission.

a) Doors and Windows:

Air circulation is very important to lead a hale and hearty life in your dream home. For proper air circulation and sunlight, the doors and windows are to be placed properly especially in the kitchen and bathrooms. Sliding doors, if any, are to be checked and any defects should be brought to the builder’s notice. It is also important to check that your main door is fitted with a door eye/magic eye as this is one of the most basic features that a home must have.

b) Walls and Ceiling:

Some builders might leave your wall with a single coat of paint which may cause it to lose its shine within a very short period. It is better to check all the walls for a double coat. The balcony grills and gates are also to be checked for a proper finish. It would also be prudent to check for loose patches on the wall and look for fan hooks in the ceiling.

c) Floor and Tiling:

Flooring and tiles would need to be checked for cracks and cleanliness. The slope of the tiles would need to be checked in the toilet, kitchen and balcony to ensure smooth water drainage. In the kitchen, the finishing/polishing of the counter and any leakage in the same should be checked as well.

d) Switches and AC Ducts:

Placement of switches and proper electrical connection to all switches would need to be checked. If any non-functional plug points or switches are found, they should be brought to the builder’s notice. Another thing to check for would be AC ducting – bad ducting can cause seepage on the wall as well.

e) Plumbing and Sanitation:

Check the pressure of water from the taps to ensure it is at an optimum level. Also, check the functioning of hot and cold water mixture knobs in the taps. Sanitary fittings should be checked for cracks and ensure that the drainage system is in order.

f) Miniature Circuit Breaker (MCB):

When there is an overload/short-circuit in your home’s electrical circuit, an MCB is the one that saves you from a possible overload/short-circuit. Hence it is of prime importance to check its functionality and that the MCB with the right range that is appropriate for your home has been fitted.

Amenities:

A lot of amenities are usually promised at the pre-launch stages and it is vital to check whether all these are in place as mentioned. Also, look for the specifications of the facilities offered and ensure that there is no deviation from what was stated earlier.

Other Safety Precautions:

The guidelines and safety measures specified by the Government are to be followed by the builder. The piped gas lines, if fitted, that enter your kitchen are to be monitored for proper functioning. Any promised security measures such as CCTV cameras or intercom must also be tested for functionality. You can check out our home safety and security guide for more insights. Once all the above checks have been satisfactorily made, you should ensure that you have received the possession letter and the other documents that are to be received from the builder as per point number 1 above.

We hope this checklist will help simplify the process and make your life easier as you take possession of your new home so you can focus on enjoying the moment and celebrating with your family and friends.

What are the implications of selling a property in India?

Reaping the long-term benefits of your investment is the driving force of the real estate industry. If you are an NRI planning to sell your property in India but are not sure how to go about it, read on for a detailed guide covering the legal aspects and simple pointers.

Who can you sell your property to?

As an NRI, you are eligible to sell your residential or commercial property to either a person residing in India, another NRI or a person of Indian origin (PIO). You are also eligible to mortgage your property to an authorized real estate dealer or a financial institution dealing with home loans. However, if your property is an agricultural land or a farming development, it can only be sold to an Indian citizen who resides in India.

Tax implications of selling a property:

The tax liabilities involved in selling a property owned by an NRI are as per the Foreign Exchange Management Act of India. According to this act, the main factors that contribute to the amount payable as tax are:

• The capital gains determined by the date of sale of property
• The value of the agreement based on the profit gained
• Charges liable to the society
• Other pending loans

Apart from these charges, the owner is liable to pay short-term capital gains as per their tax bracket if the property has been in possession for less than three years. However, if the property at stake is up for a sale after three years of purchase, the NRI is liable to pay a flat amount of 20% of the property value as capital gains.
Under section 195 of the Income Tax Act, NRIs selling their property in India can claim a tax exemption certificate from the income tax authorities of the country. However, the application needs to belong to the same jurisdiction as the applicant’s PAN card with evidence of capital gains reinvestment.
Additionally, under section 54 of the Income Tax Act, if an NRI has sold a property within three years of ownership and immediately bought another property within two years of the sale, then the profit generated by the deal, up to the extent of the new property’s cost, is free of any tax liabilities. This rule is applicable only to properties bought in the Indian subcontinent.
To add to that, if an NRI sells a property after three years of ownership and invests the capital gains in bonds, then he is not liable to pay capital gains tax according to section 54E of the Income Tax Act. However, the bonds will be locked for a period of three years. This rule is applicable only to residential properties in India.

Repatriation of Indian property:

NRIs are subjected to a list of generic terms and conditions while repatriating a property inherited from an Indian resident. Once these conditions are met, NRIs can go ahead with the process of repatriating the sale proceeds without the permission of the Reserve Bank of India. On the other hand, if the NRI has inherited the property from someone who is not of Indian origin, they will need to seek permission from the Central Bank.
Now that you know the do’s and don’ts of property investment in India for NRIs, it is time you consider the booming industry of Indian real estate as an investment option and reap the long-term benefits of your very own property.