One of the prime reasons for Non-resident Indians (NRIs) who does real estate investing in India was an emotional one. NRIs investing in real estate in their hometown do so for reasons that depend on being close to family and childhood friends to promote self-esteem on the home ground and the simple old nostalgia. This phenomenon occurred two decades ago in Punjab and Kerala, where NRIs have built huge mansions that shine with inlays, domes, mirrors and landscape gardens in their home villages. Now the investment is often in apartments in an urban center that has connectivity and modern amenities such as shopping centers, clubs and hotels. Most cities like Mumbai, Chennai, Kochi, Bangalore, Chandigarh, NCR and Hyderabad have great absorption of NRI real estate investments.
Recently, the NRI category has also changed. Now it is not just the construction workers from the building sites in Singapore, Dubai or Malaysia that invest in houses but also the technocrats, the corporate and the artists. Demand is for very upmarket housing, with some amenities that are on par with the developed markets.
Most of NRI real estate investing comes from the Singapore and Middle East, while a smaller percentage comes from the UK, USA, Canada and Europe. The real estate investment from the Middle East is from end users who want to return to India. This category also makes substantial investments in several cities. Despite the slowdown in the economy, real estate prices have gone up, although more conservatively than in 2008.
NRIs become the center of attention when the rupee begins to slip against the dollar, as it was this year. The remittances will increase significantly as the Rupee decreases; Financial institutions and banks are quick to announce new products to catch this windfall. However, the data shows that NRIs have actually lost, because their foreign exchange remittance in high-yield deposits, supposedly to earn high-interest rates are eroded by the depreciation in the rupee. Real estate investing would lead to better capital returns.
Check the Residex to learn about real estate prices in Tier 1 and Tier 2 towns. (www.nhb.org.in/Residex/Data&Graphs.php)
NRIs are usually confused with marketing, which makes them believe that some constructions are made especially for them. The buyer will be wise to check whether these projects are professionally managed by facility managers and have sufficient security. The lack of proper administration will lead to the building being depreciated very quickly. For example, if the investment is made in an area where online payment of estate tax is not possible, then the purchaser should have a plan of how this tax is paid.
In whichever section, NRIs fall into; there are many falling knots to avoid during such investment.
The first reference point is the Reserve Bank of India (RBI) guidelines for NRI on real estate investing (http://www.rbi.org.in/scripts/FAQView.aspx?Id=52)
- One thing to note is that overseas Indians cannot buy agricultural land, plantations and farmland.
- Get a reputable legal adviser to review the land documents before you invest. In a number of cases, residential complexes were developed on agricultural land without the necessary permits from the Government. In such a case, the development is declared illegal and investors are obliged to lose.
- Review the original title deed of the property. Make sure the title is in the name of seller. In many cases, the seller provides only a photocopy of the title deed. One reason for this is that the property was pledged and the other could be that there are several owners. The primary check is very important so the sale is not challenged in court.
- Ensure that the developer has all compulsory Governmental clearances- municipal and environmental as well as the authority to transfer the undivided interest in each flat owner and the entire land to the society when the project is completed.
- Once the due diligence has been completed and the price has been negotiated at a mutually beneficial level, the sale contract must be printed on a Rs. 50 stamp paper mentioning in which the final amount, the advance, the time for the instalment payment and the details of the instalments.
- Once the sale deed has been completed, it must be registered with the sub-registrar or Sub-District Magistrate. The NRI’s foreign address must be mentioned in the sale contract. In the case of a power of attorney, the power of attorney shall be notarized by the Indian Embassy in the purchaser’s country of residence.
- Payment should be made through funds through banks or from funds held in an NRI account; Payment may be made either by non-resident ordinary (NRO), non-resident (NRE) or foreign currency non-resident (FCNR) accounts.
- Aside from the stamp duty and registration fees, there is also a stamp duty levied.
- NRIs can take home loans if the terms and conditions applied in the Foreign Exchange Management (Deposits) Regulation 2000 is followed. Banks cannot advance new loans or extend old for more than Rs 1 crore against NRE and FCNR deposits.
- The loan may be serviced and repaid by means of remittances received through banks and direct debts from the NRE/NRO/FCNR account. It can also be used by rental income from the property