SMART SOCHO - NRI guide to investing in desi property

Attractive returns, simplified investment norms, and an opportunity to stay connected with their roots, are driving NRI investors to invest in India’s real estate, writes RAJESH KULKARNI. 

With property prices on the up, there is no denying the fact that India’s real estate sector today presents a lucrative investment option for the scores of Non-Resident Indians (NRI) spread across the world. Moreover there is always that sentimental value attached to owning a home ‘back home’. Small wonder then an increasing number of well-heeled NRIs are today putting their money into shrewd property deals pan-India.

One of the biggest drivers of property investments here by NRIs is the sheer simplicity of making such transactions. The present RBI regulations governing such deals don’t require any prior sanctions from the authorities, nor is there any kind of restrictions on the number of properties an NRI can buy in India.

The only restrictions apply on the purchase of agricultural land, plantation land and/or a farm house, which is presently not permitted under the Foreign Exchange Management Act (FEMA) regulations. However these restrictions do not apply if the properties in the restricted category have been gifted or inherited by the individual.

Moreover, NRI investors also enjoy the option of renting out the purchased property and earning rental income, which can be repatriated overseas.  They also have the right of transferring or selling the property.  Similarly monies accrued from the sale of property inherited from a resident Indian are also permitted to be remitted abroad in one calendar year, provided the amount does not exceed the sum of US$1mn.

Tax-saving Tool:
An investment into property can also be an excellent tax saving tool for both residents and non-resident Indians. The benefits for a NRI are very similar to the tax benefits of a resident Indian. Elaborating on the tax implications for NRIs on rental income from a property purchased in India, Raja Mukherjee, Head – Sales & Marketing, Concorde Group reveals, “The tax norms governing such income are fairly easy and investor-friendly. A deduction is available with respect to actual payment of house tax, in addition to a 30 percent deduction towards the repair, maintenance and collection charges of the said property.”    
  
“This added deduction is available regardless of whether he actually spends money on repairs or otherwise,” adds Mukherjee. “All these incentives combine to substantially reduce the tax implications on rental income for NRIs.”

Finance Options For NRIs:
NRIs looking for local finance options to fund the purchase of property within India usually face no problems finding ready lenders provided eligibility criteria are met and property title is clear. RBI regulations permit a maximum of 80 percent of the property value to be funded by a financial institution, while the balance has to be paid by the investor from his own pocket.

According to some financial pundits, since loans from domestic institutions have to be repaid in rupees, it’s advisable for NRIs to opt for foreign funding, especially if the rates are lower and the NRI is overseas with a steady source of foreign income.

It has to be noted however that all such transactions have to be executed through normal banking channels with the repayment is serviced by inward remittances or the rental income from such properties. NRI investors also have the option of getting the funds sent from their respective NRE/NRO accounts (in India), via post-dated cheques, ECS (attached to their NRE/NRO or FCNR account.

Taking the PoA Route:
PoA or Power of Attorney is an important tool especially during the purchase of an under-construction property. A legal right given to lawyers by the investor on specific request, a PoA allows the lawyer to interface with the property seller (on behalf of the investor) thereby making the buying process a lot simpler and quicker.

Applicable on all kinds of contracts a PoA can be utilized to execute all kinds of deeds, contracts, mortgage papers and lease & sell agreements. However given its power, a PoA should only be entrusted in the hands of an experienced and trusted legal representative.

Tips on Due Diligence:
Since property transactions involve the exchange of huge sums of money, it’s always advisable for buyers, both resident and non-resident to do their due diligence on key issues prior to proceeding forward with the deal.


A small checklist on the things to do before signing the papers should include:

• Getting the property ownership papers verified by a qualified lawyer before going ahead with the deal.
• Check the title thoroughly, more so if the said property is inherited or held jointly.
• In case the property is under mortgage or was at any point of time, always take an official release from the bank involved.
• Insist on a no-dues certificate signed by the seller, at the time of purchase to avoid the unpleasant surprise of unpaid property tax, electricity and water bills cropping up post purchase.
• In the case of new constructions, investors should ensure that the land title is in the clear and the developer has all the relevant approvals and permissions from the civic authorities to develop the property.
• Those opting for a loan should brush up on their educational qualifications & professional details. Only graduate NRIs are eligible for home loan in India.