Property Investment in India: Opportunities for NRIs
The property investment story in India is growing bigger by the day as more and more foreign funds are coming in to cash on. While more than 35 big foreign funds are already in, the first half of 2007 will see at least 20 more funds making an India entry. Meaning around US$ 10 billion of foreign direct investment (FDI) will be injected into the real estate sector.
This is a good article on Home loans for NRIs.
India is thus zooming away in the face of a real estate boom. There is property boom in any direction you wish to see. Whether it is Bangalore, Pune, Calcutta or Chennai or Hyde arabad or even already sky high Mumbai and Delhi - the story is the same.
The concern is that Indian stock market is at the height of a boom. So asset relocation is happening. Investors are rushing to put their money in a safe place. Also, add the foreign exchange glut in India fuelled to a great extent by software engineers parking their dollar salaries in real estate. Relatively low interest rates over the last few years made bank loans easier.
Indian government has also opened the construction and property development sector for foreign direct investment. They have allowed 100 per cent FDI in the vital infrastructure sector in order to spur investment. And also for the first time it has thrown open the lucrative parts of the Indian property market to global investors.
NRI interest in property market
The boom is also attracting interest from Indian Diaspora in foreign countries. In recent years, NRIs have played a very important role in transforming the Indian property market. Opening-up of the Indian economy provided NRIs with new opportunities and they have shown a great deal of confidence in it. They have invested a sizeable amount, of which a big chunk in property market. Participation by NRIs has brought about a lot of maturity in the market which in the past had solely banked on the actual users.
Various lucrative avenues are being created and offered to invite maximum investments from abroad. The NRIs have responded quite positively, showing keen interest in India's real estate market. NRIs are investing a lot in residential and commercial properties to cash upon the increasing property demands.
If you found this article usefull, you may also be interested in How to Invest in Stock Market in India.
Where the investment is allowed in property.
NRIs are allowed to participate in real estate investments by way of investments in variety of infrastructure projects. It can be the construction of residential and commercial properties, development of townships at city and regional level, constructing infrastructure facilities like roads and bridges in urban areas and investment in participatory ventures. The status of an NRI as a property owner is not much different from the Resident Indian; just like any other property owner, NRIs pay property tax to the concerned authorities, though NRI property tax is slightly different from what Indian residents pay. So NRIs and also PIOs are legally permitted to acquire any kind of immovable property in India, with the exception of agricultural land, a plantation or a farm house.
Where to get funds to invest in property.
NRIs can fund investments through their own funds. Own funds are funds an NRI receives in India by way of inward remittance from overseas, out of income earned overseas or personal savings outside India, or funds held in non-resident external (NRE) or non-resident ordinary (NRO), or foreign currency (non-resident) (FCNR) bank account for purchasing real estate in India.
NRIs can also avail loans. NRIs get complete support from the financial institutions and banks for the finance required for the purpose of investment in properties in India. NRIs are eligible for availing a home loan facility to purchase a property in India; in fact they are considered a safe profile due to their good repayment capacity. As far as the process of the repayment of the home loan is considered, it can be made through a normal banking channel by way of inward remittance. It is also possible to repay by way of direct debit into the NRE account or NRO account. Online banking in India, and these special accounts for NRIs, has facilitated transactions for any kind of NRI investment in India. The quantum of loans, margin money and the period of repayment is at par with the housing loans provided to residents in India. The installment of loan and interest and other charges has to be paid by the NRI / PIO by remittances from outside India through normal banking channels, or out of funds in the NRE/FCNR/NRO account in India. In the last case, the loan and interest can also be repaid out of the rental income of such property.
What can be done with the property.
Property acquired can off course be used for own occupation as well as it can be let out for earning rental income. This rental income then can be credited into an NRO / NRE account.
NRIs are also permitted to transfer such property to any person residing in India, or even to another NRI or PIO, without any approval from the Reserve Bank of India.
Property can be sold as well. The remittance of the sale proceeds depends upon the mode of acquisition i.e. whether, it was acquired out of funds remitted from outside or out of rupee funds. If the property is bought from funds remitted from overseas then the proceeds can be repatriated provided the amount does not exceed, either the amount paid for acquiring the immovable property in foreign exchange received from overseas, or the amount paid from an FCNR account; or the foreign currency equivalent of the amount paid from funds held in an NRE account for acquisition of the property.
Iin respect of residential property, NRIs / PIOs can only remit sale proceeds outside India for up to two such properties without any RBI approval. Remittance for a third and subsequent residential property requires prior approval from the RBI.
A property can be acquired out of rupee funds by the NRI before leaving India or acquired after leaving India, but from the savings bank account in an Indian bank out of income earned in India. There are rules applied on the repatriation of sale proceeds of such properties acquired from rupee funds held in India.
It is dependant on period the property has been held by the NRI / PIO. For immovable property that has been held for more than 10-years, up to $1 million can be repatriated per calendar year without seeking RBI approval, if the funds have been held in an NRO account.
If such property is held for less than 10-years and it is sold, remittances can be made only if the sale proceeds have been held for the balance period in an NRO account or other eligible investments. In respect of remittance of sale proceeds of assets acquired by way of inheritance, or legacy, or settlement, no lock-in-period is there. In all other cases, specific approval of the RBI is required.
How the funds can be remitted.
If the specific approval of RBI is not required, the sale proceeds of residential property, as well as, rental income may be remitted outside India through normal banking channels, after obtaining an appropriate certificate from a chartered accountant certifying that applicable taxes have been paid / provided for. If you found this article usefull, you may also be interested in How to Invest in Stock Market in India.