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What NRIs need to know prior to property investment

Non-resident Indians (NRIs) have been a significant segment of investors, in the Indian real estate market. NRIs generally buy properties for investment purposes or out of their emotional connect with their country and for settling back once they retire. It is important that, NRIs are aware of the ground rules before buying property.

According to Amit Wadhwani, director, Sai Estate Consultants, “India has emerged as a lucrative spot for international capital. Overseas investments have surged 137 per cent, from US $ 3.2 billion during 2011-13 to US $ 7.6 billion during 2014-16. According to a survey, almost 30 per cent of the total global real estate transactions in India will be cross-border.”

FEMA rules of the RBI

In order to attract more foreign investment, the Reserve Bank of India (RBI) has made the rules simple for NRI investments. Real estate transactions fall under the purview of the Foreign Exchange Management Act (FEMA). “An NRI or person of Indian origin (PIO), as defined in FEMA, can acquire by way of purchase, any immovable property in India, other than agricultural land/plantation property/farm house. This is under a general permission that has been given by the government of India. However, no person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan, shall acquire or transfer immovable property in India, other than lease, not exceeding five years, without prior permission of the Reserve Bank,” explained, Amarjit Bakshi, managing director, Central Park.

Types of properties where NRIs can invest

An NRI is allowed to invest in both residential and commercial properties. However, any agricultural land, farm house and plantation property can be owned, only if it is inherited or gifted to the NRI.

Financial transactions

When it comes to property transactions in India, NRIs/ PIO can make payments out of funds remitted to India through normal banking channel and funds held in NRE/ FCNR (B) / NRO account. No payment can be made either by traveller’s cheque or by foreign currency notes.

No payment can be made outside India.

Loan eligibility

Bakshi elaborates that, like normal Indian citizens, NRIs/PIOs too can avail of home loans in Indian rupees for their property purchases, up to 80 per cent of the property value, depending upon individual eligibility. Such a loan can be repaid by way of inward remittance through normal banking channels. By debit to the NRE / FCNR (B) / NRO account or out of rental income from such property. The loan can also be taken by the borrower’s close relatives, as defined in Section 6 of the Companies Act, 1956, through their account in India, by crediting the borrower’s loan account.

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