NRI Tips

Q. Who is a NRI?

Foreign Exchange Regulation Act of 1973 a NRI as "a person who has gone out of India or who stays outside India, in either case -

	for or on taking up employment outside India, or
	for carrying on outside India a business or vocation outside India, or
	for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period."

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Q. Is the permission of The Reserve Bank Of India required for NRIs to purchase residential or commercial property in India?

Ans. No.

Q. Is an NRI who has purchased residential or commercial property required to file any documents with Reserve Bank of India?

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Ans. "An NRI who has purchased residential / commercial property under general permission is not required to file any documents with the Reserve Bank."

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Q. What are the Reserve Bank guidelines regarding Investment in immovable Property by a NRI

Ans. An NRI:

"May acquire immovable property in India other than agricultural/plantation property or a farmhouse out of repatriable and non-repatriable funds.

In respect of such investments NRIs are eligible to repatriate

	Sale proceeds of immovable property acquired in India to the extent of repatriable funds used for acquiring the property, without any lock-in period, up to two residential properties. The balance will be repatriable through NRO Account subject to conditions mentioned at item (I) (d).
	Refund of (a) application / earnest money / purchase consideration made by house-building agencies/seller on account of non-allotment of flats / plots and (b) cancellation of booking/deals for purchase of residential/commercial properties, together with interest, net of taxes, provided original payment is made out of NRE/FCNR(B) account/inward remittances."
	Housing Loan in rupees availed of by NRIs from ADs / Housing Financial Institutions can be repaid by the close relatives in India of the borrower.

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Q. Can foreign citizens of Indian origin acquire commercial properties in India?

Ans. "Yes. Under the general permission granted by Reserve Bank properties other than agricultural land/farm house/plantation property can be acquired by foreign citizens of Indian origin provided the purchase consideration is met either out of inward remittances in foreign exchange through normal banking channels or out of funds from the purchasers' NRE/FCNR accounts maintained with banks in India and a declaration is submitted to the Central Office of Reserve Bank in form IPI 7 within a period of 90 days from the date of purchase of the property/final payment of purchase consideration."

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Q. Can a NRI returning back to India hold or transfer immovable property situated outside India?

Ans. A returning NRI :

" may continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, if such currency, security or property was acquired, held or owned when resident outside India."

"may open, hold and maintain with an authorized dealer in India a Resident Foreign Currency (RFC) Account to transfer balances held in NRE/FCNR(B) accounts. Proceeds of assets held outside India at the time of return, can be credited to RFC account. The funds in RFC accounts are free from all restrictions regarding utilization of foreign currency balances including any restriction on investment in any form outside India."

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Q. What are the criteria regarding availment of home loans for NRIs in India?

Ans. According to Reserve Bank guidelines for NRIs

	The loan amount shall not exceed 85% of the cost of the dwelling unit.
	Own contribution, which is the cost of dwelling unit financed less the loan amount, can be met from direct remittances from abroad only through normal banking channels, your Non-Resident (External) [NR (E)] Account and /or Non-Resident (Ordinary) [NR (O)] account and /or Non-Resident Special Rupee account [NRSR] in India.
	Repayment of the loan, comprising of the principal and interest including all the charges are to be remitted from abroad only through normal banking channels, your Non-Resident (External) [NR (E)] Account and /or Non-Resident (Ordinary) [NR (O)] account and /or Non-Resident Special Rupee account [NRSR] in India.

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Q. Can a NRI give a Power of Attorney to a person in India for completion of loan formalities on their behalf?

Ans. Yes.

We very well understand that as an NRI you have a different set of needs with respect to your real estate management and investment requirements and we also understand that it needs special set of services to cater to your requirements. The good news from India is that government has allowed 100% repatriation for NRIs.

A. Reserve Bank has granted general permission to certain financial institutions providing housing finance e.g. HDFC,LIC Housing Finance Ltd.,etc. to grant housing loans to non-resident Indian nationals for acquisition of houses/flats for self-occupation subject to certain conditions.

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Q. Can authorised dealer grant loans to NRIs for acquisition of a flat/house for residential purposes?

Ans. Authorised dealers have been granted permission to grant loans up to non-resident Indian nationals for acquisition of house/flat for self-occupation on their return to India subject to certain conditions. Repayment of the loan should be made within a period not exceeding 15 years out of inward remittance through banking channels or out of funds held in the investments' NRE/FCNR accounts.

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Q. Can Indian companies grant loans to their NRI staff?

Ans. Reserve Bank permits Indian firms/companies to grant housing loans to their employees deputed abroad and holding Indian passport subject to certain conditions. Source: Reserve Bank of India

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Q. What are the options available for obtaining guarantors while applying for a HDFC/LIC loan

Ans. One will need a guarantor for a loan mainly for collateral security. The guarantor will have to demonstrate appropriate networth to cover for the loan. Usually one can have a guarantor in any city where the loan issuer has a branch. Talk to loan issuers they will work something out for NRIs and foreign banks.

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Q. While purchasing real estate most developers demand a Power of Attorney in their favor, is there a way to avoid it?

Ans. One can choose not to grant the Power of Attorney (POA) to the developers. However this will mandate the mailing of all documents to your foreign residence and associated time delays. A good compromise is to grant the POA to the builder only for specific necessary items.

If you are an NRI or a Property Buyer/Investor you need to understand your Investment Horizons in Real Estate pretty well.

Term of Investment – This is important as you need to hold on for at least 1 to 3 Years for a decent capital appreciation and if you sell your property within 3 years you are in for a short term capital gains which is at par with the Income Tax rules of nearly 30 to 35% as applicable. It is better to stay invested for 3 years and then plan the next investments with Capital Gains etc.

Pre-Launch offers – Investing in property means also an entry load by paying stamp duty and registration fees and other incidental charges to the Builder etc. If you are investing it is always wise to invest as soon as the project is launched as this gives you enough time for appreciation as usually the builder goes in the Stock Market kind of a mode in the first year of its property by hiking the prices every few months.

Know your Builder – It is imperative to know your Builder and the project as at the time of your exit the builder has to be extremely co-operative, the first question to shoot when you are buying an Under Construction Project is – If I sell what happens? When can I Sell? Will you charge me some transfer fees? How is the paper work will be done between the Seller, Builder and the Buyer?

Invest with Deep Thought – The present market is volatile in Mumbai and it is imperative for you to give a deep thought on various accounts, which begins from the Project, Infrastructure available within the Project, Outside the project in the neighborhood, Selling prospects, Leasing prospects, Neighborhood development, Distances to Schools, Markets, Malls, Hospitals, Highways, Airports, Railway stations etc. These should act as your analysis points.

For NRI’s - especially before coming to India, make sure you are carrying most of the relevant papers with you. You should always have an NRE and an NRO account in India and if you are looking to invest in Mumbai then one should have an account in Mumbai for easiness. Review your NRI allowances by the Government of India every budget etc.

Home Loans – You can set off your EMI’s if you invest wisely in a property as the rates are presently around 8% and your rental returns are around 4-6%. You can be a happy man if you do this fool proof homework as your EMI can be hedged off against the rent receipts to a certain degree.

Re-Sale Properties – In a booming market every property owner wants to encash his property at the best value. A few issues which we face is the commitment level of the seller and we can stumble on to good transactions at times, but this is more of a time consuming process at times. The repair value, old building and other property documentation issues can be challenging in certain transactions.

Returns – It is always advisable to take a conservative approach in both Capital Appreciation and Rental returns. However one can safely expect appreciations anywhere upwards of 15% Per Year and Rental Yields of 4 to 6%.

Commercial and Malls – The opening of new Malls is surely a good sign but one has to be very careful in investments in Malls and Commercial real estate. The returns though can be constant, but for smaller players the Malls and Commercial complexes can be too hot to handle as the outgoings are pretty steep and there is a huge difference between the built up and carpet ratio. It is excellent for self use and business or for a pre-leased option.

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NRI Legal Points

Q. NRI investments in real estate

Non Resident Indians are allowed to make real estate investments in India without any cap on the quantity or the number of investments. But instead of giving a preferential treatment to NRIs bringing in valuable foreign exchange, the government goes all out to make investments in real estate a difficult proposition with a set of regulations that an NRI has to follow under the Foreign Exchange Management Act, 1999.

All purchases and sales are bound by the rules and regulations under the FEMA, which replaced the earlier Foreign Exchange Regulations Act. After fulfilling the formalities stipulated by the RBI to bring in investments, the NRI faces yet another hurdle - there is a cap on returns he can repatriate out of the investments made in immovable properties in India.

Foreign direct investors in sectors where foreigners are permitted to invest are allowed to repatriate profits from businesses in India as dividends. NRIs have no dividend option for repatriation. In areas where NRIS are allowed to repatriate profits like deposits, it is estimated that NRIs have made deposits of nearly US$ 10 billion.

NRI interest is high on deposits as the interest accruals on such deposits and the deposit amount itself can be repatriated. Only preference that an NRI enjoys in commercial or capital investments like real estate, banking and civil aviation is that the investments caps for NRIs are higher than for a foreign national.

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Q. NRI Investment in real estate regulated by FEMA

All NRI investments in real estate or immovable properties are considered as transactions that gets regulated under the FEMA. This is essentially because an NRI would be dealing with foreign exchange. It is considered to be a type of transaction which is bound to have some international financial implication. The current account transactions or capital account transactions of the NRI which are used to make investments in real estate thus gets automatically regulated under FEMA. Current Account Transaction consists of payments due as interest on loans and net income from investments.

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Q. Capital Account Transactions

Capital Account Transactions means transactions which alters the assets or liabilities, including contingent liabilities outside India of an NRI. It includes transactions involving acquisitions or transfers of immovable property outside India, other than a lease not exceeding five years by an NRI or a resident, remittances outside India of capital assets of an NRI and foreign currency accounts in India of a person resident outside India. Even deposits between a person resident in India and a person resident outside India are considered as capital account transactions.

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Q. NRI regulations for purchase of property

The Reserve Bank has granted a blanket permission to NRIs to purchase property in India for their residential and commercial purposes. There is also no limit on the number of investments or the quantity of investments that can be made in real estate. The immovable property can be purchased by inward remittances from any place outside India or through funds maintained in NRI accounts in the banks within the country.

FEMA stipulates that before making a purchase a specified form called the IPI 7 needs to be filed with the central office of the RBI along with the title deed or any other certified copy of the document proving that the NRI has executed an agreement to purchase property within the country. The form has to he filed within 90 days of the purchase of property and has to be accompanied with a bank certificate stating the consideration paid for the purchase. Permissions are generally granted without undue delays if all the relevant papers are submitted.

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Q. NRI regulation for sale of property

NRI desiring to sell property within India has a lock in period of three years. That is, NRI under the FEMA regulations is allowed to sell property only after three years from the date of acquisition for the property or from the date of payment of the final installment of the consideration for its acquisition, whichever is later.

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Q. Repatriation or realty returns or sale proceeds

It is easier to bring money into the country. Getting out has a number of bottlenecks, which is a constant disappointment for the NRI community. FEMA says no matter what the proceeds of the sale may be, the amount for repatriation should not exceed the amount paid for acquisition of the immovable property in foreign exchange received through the normal banking channels or out of funds held in foreign currency Non-Resident Accounts. The repatriation of sale proceeds is restricted to only two properties. NRIs are also restricted from repatriating returns form real estate investments in the form of dividends.

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