The long-term property prices in India are mostly on an upward swing but the depreciating value of the Rupee in the foreign exchange has brought the smiles back on the faces of the NRIs.
This depreciating Rupee has transformed the real estate market into a highly lucrative one for the NRI property investing ideas.
The RBI regulations are highly conducive for investing in India. There is no need to seek prior permission from the concerned authorities like RBI etc.,.
The rules pertaining to property transactions involving NRIs fall under the Foreign Exchange Management Act or FEMA.
NRI Real Estate Property Investment Guide
A NRI or Person of Indian Origin can own residential and/or commercial properties in India and there are no restrictions on the number of properties that can be owned.
However, a NRI/PIO cannot purchase any farm house, agricultural land and plantation property. The monetary transactions should take place in INR and through normal banking channels only through a NRI operated NRE/NRO account.
What Types of Investments can a NRI get involved in real estate?
The RBI & FEMA have clearly laid down that a NRI can only make specific investments in the real estate sector such as
- Any immovable property can be purchased except agricultural land, farm house and plantation property.
- He can get an immovable property as a gift from an Indian resident or an Indian citizen residing outside India or PIO.
- Obtain a real estate property through inheritance as NRI.
- Transfer the immovable to any Indian resident by way of sale.
- He can actually transfer any agricultural land, farm house or plantation property to a Resident Indian through gift.
- He can transfer his residential or commercial property to a person residing in India/abroad or a PIO by gift.
What can be the Sources of Finance for NRI property/real estate investment?
NRIs consider financial lending institutions as one of the best means of obtaining financial assistance while purchasing a property in India. The institutions too, on their part, regard the NRIs as esteemed clients and offer them home loans easily as they are very prompt in repayment.
However, RBI has laid down some norms for home loans given to NRIs who are looking to buy a property in India
- A maximum of 80% amount can be financed by the financial institutions and the rest should be borne by the NRI. This is almost similar to those for resident Indians.
- The amount of the down payment must be remitted through the normal banking channels such as NRO/NRE account in India. If you’re paying cash also, it must be funded through NRE/NRO account.
- The NRI needs to repay the principal and the interest through the banking channel only.
Investing in properties in India is therefore a lucrative option for NRIs. But the joy can be a short-lived one if the papers are not in proper order or if there are some missing papers.
But things can get a lot easier if a person acquires property documents which are fully legal, free-held and are approved. Let’s take a look at the documents that should not be missed.
Required Documents for Property Investment by NRIs
Any NRI who wishes to invest in a property in India must hold a valid Indian passport. But if he is a foreign country passport holder then he must acquire a Person of Indian Origin or PIO card through that country’s consulate or embassy.
The passport should clearly show the Visa stamp and date of entry. But there is an exception to this rule. A NRI who holds his/her birth certificate or the Indian passport of his parents can also invest in a property in India.
Proof of Residence in India/Abroad
A NRI needs to submit substantial documents in support of his address in India. The acceptable list of documents include telephone bill, ration card, electricity bill, LIC policy, cell phone bill or any utility bill. If he is submitting ration card then he needs to furnish one more document in support of his Indian address.
For his overseas residential proof he can submit the equivalent of any of these documents and some additional documents like
- Driving license
- Identity card
- Work permit
- Social security card
- Copy of credit card and the
- Last 6 months bank statements of all NRE/NRO accounts in India
The NRI may also submit the POA (proof of address) Card from the local Postal Department that serves as both ID and POA proof.
But care must be taken to ensure that all proofs are submitted in the name of the primary applicant only. If the address proof and Visa is in any language other than English then a notarized translated copy (English) must be submitted.
The NRIs who reside in the Middle East must produce a copy of the Employment Card in addition to the regular mandatory documents. All documents must be certified by the Indian Embassy and the salary/income document must be attested by the employer if the salary is not being credited in the bank.
Permanent Account Number or PAN
A NRI must apply for a PAN Card for the taxable income in India and the property transactions that he/she will make. The PAN Card can be acquired by submitting Form #49A along with the desired documents and a very nominal fee.
The PAN Card is very important as it gives BO or Beneficiary ownership to a NRI. It helps the NRI to buy an ‘under construction’ property instantly although the same cannot be registered. The NRI will not be able to disburse a loan with a property which is unregistered.
No-Objection Certificate or NOC
For a NRI, the NOC is very important as it proves that his money has been well-invested. A NOC from the local Municipality will ensure that proper building permissions have been taken builder for the project.
The NOC is issued to denote a go-ahead from the fire department, drainage, water supply, sewage clearance, the electricity board’s sanction of power, approval from the Pollution Control Board and the required permission from the civic health authorities.
Also read: Economic Times’ NRI property article here.
Agreement of Sale and the Sale Deed
The Agreement of Sale is the primary contract that is signed by the buyer for properties which are still under construction. This is not required if the buyer is buying a ready for possession property.
He can directly sign the final Sale Deed with the payment to be made against the balance amount that is due for the purchased property. The Agreement of Sale must be registered with the concerned authorities. A Sale Deed is actually is required when the property is sold by a third part such as the realty promoter.
The NRI should ensure that the property is sold by the rightful owner of the property and he has a registered Power-of Attorney to sell the said property. To be on the safe side, it is always advisable that a NRI buys a property sold by a reputed builder who commands a flawless record.
The Sale Deed must be executed by both the seller and the buyer. The Deed must have all the requisite details such as the origin of the property title, records of past payment, precise terms and the correct identification of the property along with the references of the instruments of payment.
The Sale Deed must be thoroughly checked to look out clauses that can violate the rights and interests of the NRI over the property and it must not contain clauses for any additional construction which would directly violate the Apartment Ownership Act.
The FINAL SALE DEED will be executed on the stamp paper having the correct value. It must be signed at the time of taking possession of the project and it must be registered at the office of jurisdiction. The buyer should be present at the time of signing the Agreement of Sale, the Sale Deed and its subsequent registration.
If the NRI is unable to attend the same then he must appoint a Power of Attorney or POA.
Power of Attorney or POA
It is always advisable that the NRI himself is present in all the formalities of the property transaction. But if, due to unavoidable circumstances, the NRI is unable to attend then must give the POA to a trusted person.
The POA is of 2 types – the General Power of Attorney and the Special Power of Attorney. In the former, the person (who has been granted the POA) undertakes various transactions but in the Special POA, the person will undertake only specific transactions.
The concept of POA is very useful for an NRI as it helps him to purchase and sell a property from abroad in accordance with the RBI regulations. The POA must be executed on a stamp paper as per the norms of the concerned country.
The POA must be signed by the NRI in front of a consulate officer and the signature on the Sale Deed must be attested by the Indian Consulate officer. The NRI must sign on each and every page of the Deed and must send a covering letter with the date mentioned therein.
It should be noted that the POA must be sent to India or get presented for adjudication within 90 days.
The Encumbrance Certificate is very important for a NRI as it denotes whether the property is in mortgage or not. The property owner may have taken out a loan against the property in the past. Acquiring this certificate will reveal the past property transactions that has been registered.
The Encumbrance Certificate can be obtained from the sub-registrar’s office on submission of the application form, proof of residence, the details of the property and a small fee. The certificate should cover the last 30 years preferably but a minimum of 14 years at least.
If the property in which the NRI is investing, had been pledged in the past then he should ask for a Release Certificate.
This certificate will confirm that the full loan amount along with any outstanding dues has been repaid by the owner and the property is fully clear of any sort of dues. The Release Certificate will be issued by the same bank that gave the loan to the home owner.
Popular post: 7 must do things on home loan closure
Khata is actually a record that states the entry of the details of the property owner with the respective corporation or Municipality. Acquiring a khata is very helpful during the registration of a new property, sale of a property and when a NRI transfers the title of an inherited property.
The Khata mainly has 2 parts – Khata Certificate and Khata Extract. One can find basic details such as the type of property, the name of the property owner and property taxes which has been paid.
A Mother Deed is important when a NRI invests in a used property. This is a very useful document as it traces the origin of the property and the land on which it is built.
This helps to determine the ownership of the property and all previous transactions. But if the same is not available due to some reason then certified copies from the registering authorities will also do the job.
The Patta can be obtained from the tehsildar’s office and that will help to testify the ownership of land with apartments and buildings on it.
It is a legal document that shows that the property is occupied and the owner has legal possession. If there is any problem with the property title in the future, the Patta is taken in as evidence.
The above-mentioned documents are very important when it comes to purchase of a property by a NRI. But he/she should also ask the builder for a clear title of the property and an approved layout plan. Approved Layout Plan is important when the NRI is investing his money in a private layout.
The municipality will check the private layout and accord the license accordingly. The property will have a clear title as it proves that a property is free from any kind of lawsuit.
Important points to Consider at the time of making a Purchase
One should be very careful at the time of making a purchase and must keep the following points in mind –
- Property Name: it should be clear from all issues and the seller should have the right to sell it even if it is inherited or joint property. Check Sale Deeds, Encumbrance certificate, Patta clearly. Don’t be stingy to hire a qualified lawyer.
- NDC: check that there are no outstanding utility bills or any other dues pending with the authorities. A No Dues certificate from the seller is enough.
- Bank Release Letter: this document is very important if the property had been engaged in any mortgage.
- Permits: all approvals and permits needed for construction must be in place from the civic authorities.
A Safe Deal is the Order of the Day
In order to ensure that a NRI gets a safe deal, he is always encouraged to attend the property seminars and expos and make dealing through a reputed developer.
A clear title free from any kind of lawsuit is absolutely essential. Enquire whether the developer will take care of the property’s maintenance even after the purchase. Always cross check with reliable sources to make sure that you are in good hands.
Check out the next article for Tax implications, How NRIs can sell property etc.,
What is your experience as an NRI investing in real estate in India ? Share your experience.