Investing in the Indian real estate

market

More and more non-resident Indians (NRIs) and persons of Indian origin (PIO) who currently hold foreign passports, are purchasing property in India. While every non-resident would have their own reasons of purchasing property in India, some of the common reasons are: 1. For investment purposes. 2. To have a place in India when visiting. 3. Their desire to return to India sometime in the future. Regardless of the reason of purchasing property in India, it is important for non-residents to be aware of the rules and regulations in India that apply to property purchases by non- residents and foreigners.

Can foreigners buy property in India?

While non-resident Indians (NRI) who hold Indian passports and are settled overseas can legally purchase property in India, not all foreigners are permitted to do so. The Reserve Bank of India (RBI) is the authority that governs such transactions and they fall under the purview of India’s Foreign Exchange Management Act (FEMA). When it comes to foreigners purchasing property in India, there are two categories of foreigners. 1. Foreigners who are considered to be persons of Indian origin are allowed to invest in Indian real estate and can purchase residential as well as commercial property in India without any permission from RBI. 2. Foreigners who are not of Indian origin are restricted from investing in Indian real estate. Foreigners of non- Indian origin who are resident in India require prior permission from the Reserve Bank of India to purchase property in India. NRIs, Foreigners of Indian origin are NOT allowed to purchase agricultural land, plantation or farm houses in India. The only way they can acquire such properties is by way of inheritance.

Who is considered to be a person of Indian Origin?

As per India’s Foreign Exchange Management Act (FEMA) Notification No.13 dated May 3, 2000. Persons of Indian origin refers to a citizen of any country other than Bangladesh or Pakistan who had: 1. At any time held Indian passport or She/he or 2. either of their parents or any of their grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 or 3. The person is a spouse of an Indian citizen or a person referred to in 1 or 2 above. If any of the above apply to you, and you have never been a citizen of Bangladesh or Pakistan, then you are considered to be a person of Indian origin (PIO). The Reserve Bank of India (RBI) regulations allow foreigners of Indian origin (PIO) to purchase residential as well as commercial properties in India without any prior permission from the government authorities in India.

Purchasing Property in India

Non-residents considering buying property in India should keep in mind that India’s legal system may not be exactly as they are accustomed to. Those intending to purchase property in India are strongly advised to check and re-check facts related to their investment before paying deposits for property based solely on advertisements in the media or verbal assurances of real estate agents and property dealers.

Consider a Bank Loan to finance your property

Even if you have the money, consider getting a small loan to finance your property purchase in India. In case you are wondering why opt for a property loan if you have the money, read on. While a good credit rating is a major factor when banks, in western countries approve loans. In India the majority of loans are based on collateral. Before a bank will loan you money to purchase a property in India, they will verify the particulars of the property on which the money will be loaned by them. Banks employ professionals and are pretty good at assessing property values. They are usually also aware of builder’s reputations in the market, as they deal with these issues on an ongoing basis. Before bank’s loan money for a property, they will scrutinize the builder’s land ownership, building permits records etc. diligently before advancing money. Even though a purchaser’s lawyer would do the required search, a second opinion is always welcome when trying to verify property ownership records in India. Getting professional advice in investment matters, especially when investing in a foreign country can help safeguard your investment. The bank where you do your banking may offer valuable advice for free to its account holders on investment matters.

Title Report

A title report is basically a document meant to show how the builder obtained title to the land on which they are constructing homes to sell. Title report should be prepared by the seller and the purchaser’s lawyer, should check it to ensure that the title is clear and marketable. Normally such reports are for a period of the last 30 years, showing ownership/ transfer details of the land. This helps to ascertain the present owner of the land. Buyers should get a detailed report, don't get satisfied by just a one page certificate. Title report helps in determining that the land indeed is legally owned by the builder, and he is not constructing on land that is in dispute.

Tips on buying property in India

1. Foreigners can legally purchase property in India without prior permission from the Reserve Bank of India only if they qualify as being a ‘Person of Indian Origin’ 2. Foreigners who are persons of Indian origin are allowed to purchase residential or commercial property in India but are NOT allowed to purchase farm houses, agricultural or plantation properties. 3. Regardless on which country you buy real estate in, location is the most important factor to consider. Before buying property in India do your homework. Buying a new property that is ready gives purchasers the advantage of knowing exactly what they are buying. On the other hand, purchasing from floor plans comes with many uncertainties. The builder may change plans, substitute materials or the project may be delayed for various reasons. 4. Check the purchase agreement fine print to ensure you know what your rights are before signing agreements. Purchase contracts favor builders and no compensation is usually given for delayed projects, unless a person wants to take builders to court, which is not an easy task in India. 5. Potential purchasers should consider retaining a reputable local lawyer to help with real estate transactions. Lawyers have the expertise to check and prepare the sale/purchase documents and help with registration of the property. 6. Consider Investing in properties built by reputed builders. Be very careful when buying land in India. Verifying ownership of vacant land is no easy process, especially for foreigners. 7. Payments for properties purchased in India should always be made through legal banking channels. Your bank should be able to guide you on the proper procedure to transfer money to India. 8. Before finalizing property purchase, get professional advice to ensure that everything is in order and the current ownership of the property has been verified, all state, local municipal laws have been complied with by the builder. 9. Never buy under pressure of losing a good deal if you don’t act right away! And never pay cash for property transactions.

Consider Buying Ready to Move in Property

There may be some advantages of buying properties where construction has been completed As the new home is ready, no wait time is involved. Get possession as soon as you pay and complete paperwork. Most important, you know exactly what you are getting. You can see actual rooms, fixtures, facilities. No guess work as to how rooms will look. It is generally not easy to visualize a layout by just looking at sketches. Quite often what you see on home layout sketches and brochures can be changed arbitrarily by the builder. Such changes are covered by builders in their sale/purchase documents, which people usually don't bother reading. Sometimes people are given the impression that the price of a ready-made home is higher than under construction homes. This is not always true and depends on market conditions. Most builders will accept reasonable offers. Negotiation on property that is ready and waiting for a buyer is always a good possibility. Every day the home lies vacant the builder is probably losing money.

Purchasing Property under Construction

When buying a new property some of the things that require attention are: Ensure that the developer has clear title to the land, and that the relevant local authorities have approved the building plans. Check purchase agreements carefully, don’t assume everything is standard and can’t be taken out of a purchase agreement. Verbal agreements and assurances have no value. Get everything in writing. READ the purchase agreement, do this before paying a big deposit. If possible, don’t buy a flat without parking space. India appears to have a new car out in the market every six months, but there is a severe shortage of parking. Get in writing date of completion and remedy if the property is not completed in time. Completion and occupation certificates are issued by the local government authorities after construction is complete and ready for occupancy. This document is to indicate that the building has adhered to municipal requirements and is a very important document. Clarify in writing in your purchase agreement that the builder will provide you with this certificate in a timely manner.

Housing Loans Available to NRIs and PIOs |

Investing in Indian Real Estate

The Reserve Bank of India guidelines allow a maximum of 80%

of the value of the purchased property to be financed through

financial institutions.

Some foreign banks may even have tie-ups with local firms who know the Indian market and offer property purchase advice to their clients free of charge. Even if you have the money, consider getting a mortgage on the property you plan on buying in India. Banks loan money on safe investments, they have research departments and lawyers at their disposal who can check facts and figures.

Buying land in India

When buying land, take every step possible to ascertain ownership of the land. This is no easy task for non-residents. The problem with land purchases in India is, the verification of ownership of the property being purchased. While India is gradually moving in the direction of computerizing property records, this facility is not widely available yet. Most records need to be verified manually and such searches are often time consuming. NRIs should always seek the help of a lawyer, when purchasing land in India. When purchasing land, here are some of the things that non-resident property purchasers should consider: Ownership record check Getting an ‘Encumbrance Certificate’ Getting a ‘Release Certificate’

Land ownership record check

Only the rightful owner has the right to sell their property, ensuring that you are dealing with the legal owner, is the number one factor when buying property. Get a check done of the ownership records of the property for at least, the past 30 years. This should show you the list of all transactions associated with the property, during this period. Don’t simply accept the documents given to you by the seller on face value. Have your own search and verification done at the appropriate registration office.

Encumbrance Certificate

The current owner may have pledged the property to a bank to get a loan. The purpose of an encumbrance certificate is to find out whether the property being purchased has a mortgage/charge on it. The encumbrance certificate will show all the transactions registered, relating to a particular property for a specified period. Depending on which state in India you are purchasing property, you may also hear of ‘Non-Encumbrance certificate’ or ‘Nil-Encumbrance certificate’. The purpose of these documents is normally the same.

How to obtain encumbrance certificate

Encumbrance certificates, are obtained from the sub- registrar’s office, where the deed for the land has been registered. The procedure involves: Submitting application to get encumbrance certificate to the sub-registrar's office, under whose jurisdiction the property is located. Providing details of the property, such as correct survey number etc. for which the certificate is required. You should get this information form the seller. Providing proof of residence. The appropriate fee. This is based on the number of years you wish to get the certificate for. Request for at least 30 years is recommended. The certificate is issued by the Sub-Registrar and should help you find information about the property such as: Documents registered in respect of the property. The parties to the property deed. Nature of charges created if any, amounts secured or transacted in respect of the property. Title information, registered details and document identifying numbers etc. While encumbrance certificate is an important document when purchasing property in India, there are some limitations on the information that these certificates provide. NRIs should not solely rely on information provided on an encumbrance certificate.

Limitations of Encumbrance Certificates

These certificates are issued for a specific period of time, and fee is charged accordingly. It does not cover any period prior to or following the period mentioned. Any encumbrance, prior or later than the dates for which the certificate is issued, would not be known. This is the reason; information should be request for a longer period of time. Generally, the encumbrance certificate issued by the sub- registrar is based exclusively on the documents registered with the registrar’s office. Any document that has not been registered will not be mentioned on the certificate you receive. In case you are wondering what type of documents may not be registered with the registrar, regarding a property? Here is an example: Suppose the property is leased, any lease that is for a period of less than one year, does not have to be registered with the registrar. Testamentary documents are not required to be registered. In a case where a lender may loan money, after taking custody of the original documents of the property. The lender may not register the loan, thinking that the property cannot be sold, as long as they have the original documents.

Release Certificate for a property

In the event a property was pledged by the seller in the past, even though the loans have been repaid, ask the seller to provide you with a release certificate. This would be a document issued by the bank that provided the loan, confirming that all loan payments have been made and there are no outstanding dues associated with the property.

Overview

Many Indian residents who are second/third generation Indians may qualify as persons of Indian origin. They may be legally in a position to invest in Indian real estate regardless of their current citizenship. Foreign citizens of Indian origin can purchase residential or commercial real estate in India without any prior permission from the Reserve Bank of India. Getting professional help and a clear understanding of your reasoning behind your property purchase in India will go a long way in ensuring that you make the right investment. If the property being purchased is for self-use, then location of the property, the amenities available in the area, security considerations etc. should be taken into account before paying deposits for the property. If the purpose is to rent the property for rental income, ensure that there will be no restrictions imposed by the society administration on owners renting out their property. Currency exchange is another factor that comes into play when buying foreign property. If the value of Indian rupee goes down compared to your home country currency, you gain as your currency will be worth more Indian rupees. However the reverse can also happen, it is difficult for everyone to predict future currency exchange rates, the best bet would be to talk to your bank and seek advice on currency trends. News reports of India’s booming housing market and huge price increases in certain buildings of some cities should not be considered to be a guarantee that your real estate investment will shoot up. Real estate investment should be considered as a long term investment. By selecting the right location and negotiating a reasonable price, the chances are that your investment will appreciate as time goes by.