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NRI can invest

15th November, 2008

The Times of India

NRI can invest
The Times Of India
A NRI and PIO can invest in property here, and repatriate the rental income and sale proceeds abroad, says
Ashish Gupta
A non-resident Indian (NRI) and person of Indian origin (PIO) can acquire residential property in India. They can rent it out, transfer it, or sell it as well. They can take the rental income and their investments in the property out of the country, subject to the foreign exchange regulations. Under the present relaxed conditions, NRIs can invest in property in India easily.
A NRI is an Indian citizen residing outside India. A PIO is an individual who at any time held an Indian passport, or whose father or grandfather was a citizen of India. However, a PIO who is a citizen of Pakistan, China or Bangladesh has restrictions in acquiring property. Also, NRIs and PIO cannot buy agricultural land, plantation property and farm house.
A NRI/PIO may use his own funds to acquire immovable property. He can also avail a housing loan from a bank. Own funds is money received in India through an inward remittance from overseas out of income earned overseas, personal savings outside India, and funds held in non-resident external (NRE), non-resident ordinary (NRO), or a foreign currency - non-resident (FCNR) bank account.
In addition to own funds, he may also avail a housing loan from a bank. The authorised banks have been permitted to provide housing loans to NRIs and PIO for acquisition of a residential property in India. It is to be noted that this is subject to certain conditions. However, the quantum of loan, margin money and the period of repayment are on par with the housing loans provided to residents in India.
The loan amount cannot be credited to the NRE/FCNR account of the NRI/PIO. It has to be fully secured through an equitable mortgage of the property proposed to be acquired. If required, the bank may also have a lien on the other assets of the buyer in India. Further, the instalments of the loan, interest and other charges should be paid by the NRI/PIO through remittances from outside India through normal banking channels or out of funds in his NRE/FCNR/NRO account in India. The loan and interest can also be repaid out of the rental income of the property purchased.
The NRI/PIO may transfer the property without any approval from the Reserve Bank of India (RBI) to anybody - either a resident of India or another NRI/PIO. In case the property is let-out, the rental income can be credited into the NRO/NRE account. In case of sale, the sale proceeds of upto two properties can be remitted outside India without any RBI approval. Remittance for third and subsequent properties requires an RBI approval.
The remittance of the sale proceeds depends upon the mode of acquisition - whether it was acquired out of funds remitted from outside or out of rupee funds. A property can be acquired out of rupee funds by a NRI before leaving India, or acquired after leaving India but from his savings bank account here. It should be with income earned in India.
The proceeds can be repatriated provided the amount does not exceed either the amount paid for acquiring the property in foreign exchange received from overseas, the amount paid from the FCNR account, or the foreign currency equivalent of the amount paid from the funds held in a NRE account.
In case the property is acquired from rupee funds held in India, the remittance depends on the holding period of the property. In case the property has been held for more than 10 years, up to one million USD per calendar year can be repatriated without any RBI approval.
If the property is sold after being held for less than 10 years, remittances can be made if the sale proceeds were held for the balance period in a NRO account or other eligible investments. For remittance of sale proceeds of assets acquired through inheritance or settlement, there is no lock-in-period. In all other cases, specific approval of the RBI is required. Wherever a specific approval of the RBI is not required, the sale proceeds of the property as well as the 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 or provided for. On the surface, the king of rock and roll Elvis Presley's words “It's now or never…” ring true. …Just the right time to buy a house. With banks decreasing their inter- est rates on home loans and property prices reportedly softening, does it mean that it will be easier to get loans? Will banks give loans willingly? Will consumers come forward to take more home loans? To a large extent, the lending and bor- rowing scenario has not become friendly in spite of banks reducing the loan rates and some news of dipping real estate prices. The existing home loan consumers are in any case glad that their inflated EMI burden will be reduced to some extent. However, it seems these boosters are not sufficient to lift the spirit of the In- dian consumer who is grappling with fi- nancial insecurities. The global eco- nomic meltdown, job insecurity, uncer- tain future of businesses/enterprises, volatility in the stock markets are other reasons which may hold potential bor- rowers from investing in residential property (and therefore by implication from taking any home loans). C e prely,ntrelt h a at o aiy While much is being reported in the media about the significant dip in prop- erty prices, in actual practice most large developers are still holding on to their prices. They may be trying to boost sales by throwing in freebies but these have so far been ineffective in raising consumer demand. Additional taxes on real estate such as the 5 per cent Value Added Tax (VAT) and 4.5 per cent Service Tax is an- other obstacle in the way of boosting demand, either for property or for property loans. This cost is to be borne by the buyer. Wl ak ed i lb n sl n ? To add to the num- ber of speed-breakers in the way of the two inter-dependent sec- tors, are the tightening of eligibility norms. Going by the scenario, the lenders have made their norms more stringent. The banks have raised the mar- gin required for a home loan because, besides the 80-85 per cent cut off, property prices could go down further. W a c ,t e o ro t h h nb r w So what should a first time borrower looking to buy a property meant for self-occupation do? Is it a good time to invest in real estate? It all depends on your personal situation but normally it is not consid- ered prudent to time the market while buying a property for self-occupation. Given the current scenario where the property price correction has perhaps just begun it may be worthwhile to wait for a few months till the dust settles down. However, if you cannot wait you should go ahead and negotiate really hard to get the best possible deal on your property You can rope in your spouse to . get the maximum loan possible. Opt for the longest tenure possible and have enough room to accommodate a hike in the loan rates (not likely in the near fu- ture but better to be prepared). New borrowers are advised to opt for a floating interest rate loan because those loans linked to a bank's Benchmark Prime Lending Rate (BPLR) can see a downward revision. This is anyways not a one-time decision and should be reviewed every 6 months at the least. Whered o of m h re oy ug ro e ? The real demand will come when the consumer feels confident about taking on long-term liabilities. One should watch for the Consumer Confidence Index (CCI) fig- ures which off late have been slipping al- most every quarter. Predictions in a volatile scenario such as the current times are difficult. Interest rates need to see a further revision southward, to be able to boost the demand for home loans. Similarly property prices should see , a visible correction to encourage the demand for realty and hence, home loans. But most impor- tantly the consumer confidence needs to be given a boost. ¦ The author is CEO apnaloan.com


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