At home in India
The Indian real estate sector is a popular investment choice for Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) looking to buy property either or both as an investment or a prospective retirement home. Indeed many developers actively court NRI investment and there are regular exhibitions bringing together developers and financiers to display their prospective ware to NRIs based in the UAE. The acquisition and transfer of property in India is governed by the Foreign Exchange Management Act (FEMA), 1999.
Both NRIs and POIs are allowed to buy what is termed ‘immovable property’ in India without being residents of the country. The Indian government has also introduced an Overseas Citizenship of India (OCI) scheme to allow a form of dual nationality for PIOs. PIO status may be phased out in favour of OCI in the future.
NRIs and PIOs may purchase residential or commercial property in India with no restriction on the number of properties they may buy. However, a person resident outside India (even an NRI or a PIO) may not acquire agricultural or plantation properties other than by inheritance without the prior approval of the Reserve Bank of India. NRIs and PIOs may only dispose of agricultural or plantation properties to Indian residents.
The Purchase Process
NRIs and POIs looking to the Indian property market will see two distinct market segments: investment property and residential property for their own use. Investment properties tend to be located in those cities experiencing rapid economic growth to accommodate the country’s growing business sector while residential destinations of choice tend to be located in the more picturesque coastal or mountain regions.
India’s property boom of the recent past may not have been quite as fast and furious as that experienced by Dubai, for example, but the country’s cities have still experienced significant transformation.
The purchase process, provided you are eligible to buy property, is straightforward. Once you have agreed a price with the seller, a lawyer draws up the sale agreement. You will be required, on signing this document to pay a deposit of between 10 and 20 per cent. Following establishment of clear title to the property, the conveyancing documents will then be stamped at the Stamp Duty office, signed by both seller and buyer and the balance of the funds must be paid.
Deeds must be registered at the Sub-Registrar of Assurance and final government duties paid. You may reasonably expect the property purchase in India to be completed within two or three months.
Stamp duty varies from state to state, you can expect to pay between four and 10 per cent, depending on where in the country you are purchasing. The registration fee at the Sub-Registrar of Assurance will be a further one to two per cent while agents and legal fees may add up to another 10 per cent of the property price to your purchase.
As an NRI you may finance your purchase through a mortgage in India or through remitted funds. Mortgage loans are typically available for up to 85 per cent loan-to-value over a 10 to 15 year period. However, interest rates tend to be on the high side and using funds built up here may make more sense. Presenting yourself as a cash buyer will, of course, also put you in a much better negotiating position.
As an NRI or PIO you may be receive residential or commercial property by way of gift from an Indian resident or from another NRI or PIO. You may also inherit property in India from a resident. If you inherit from another non-resident then that person must have acquired the property in accordance with the laws in force at the time of acquisition.
You may be purchasing residential property in India to assist family members. Both NRIs and PIOs may gift residential or commercial property to Indian residents or to other NRIs or PIOs. They may also gift agricultural or plantation properties but only to Indian citizens resident in India.
Investment Properties
India's property boom of the recent past may not have been quite as fast and furios as that experienced by Dubai, for example, but the country's cities have still experienced significant transformation.
India is the ‘I’ in BRIC – the acronym originally created by investment bank Goldman Sachs to cover Brazil, India, Russia and China; the expected economic giants of the 21st century. The country is indeed a rising economic powerhouse, a fact which is transforming its cities and increasing the mobility of its population. Rising affluence has brought rising expectations and a boom in the construction of both commercial and residential properties.
Apartment blocks for the newly affluent middle and upper-worker class in India represent a step-change in quality and have been viewed by many as ideal investment properties. However, potential investors need to think carefully about where they buy. In some cities the growth of supply is beginning to outstrip demand. Delhi may be the most notable example of this. Look instead to ‘second tier’ cities. It is an old property maxim but it is as true in India as it is elsewhere – ‘location, location, location’!
When it comes to realizing your investment, as an NRI, you may sell residential/commercial property in India to a person resident in India, an NRI or a PIO. However, a PIO may only sell property in India to a resident of India unless he or she has received prior approval from the Reserve Bank of India.
Managing your property from abroad
Unless you have family members in India who are prepared to manage your property for you, it is likely that you will need the services of an agency to do this. Many developers offer this service as an adjunct to their property construction business. For example, Pune-based Kumar Properties offers an asset management service to NRI customers. The service includes:
- lease / rentals / resale co-ordination for property purchased from Kumar Properties;
- arranging site visits as and when required for potential lease / resale clients;
- airport pickup, hotel accommodation, site visits, property maintenance;
- advice and guidance on investment opportunities in Kumar Properties’ projects.
The firm’s claim is to make NRI clients’ property investment hassle-free, dealing with the kind of small details that make it ‘tiresome’ to take proper care of property from abroad. If you are purchasing property in India it may be well worth your while checking out a good asset manager to maintain the value of your investment!
Kumar Properties was just one of a number of Indian developers represented at the Indian Home Property Exhibition held in Dubai in 2009 and organised by Citibank. Among others present were Sobha Developers of Bangalore, with projects in seven regions across the country (included integrated townships in Kerala); Fairyland Foundations with developments in Coimbatore; Chainthanya Projects of Bangalore, which specialises in what it describes as ‘villa masterpieces’; the 3C Company, a pioneer in conceiving and executing ‘green’ developments; and Hirco – the Hiranandani Group – showcasing Hiranandani Palace Gardens in Chennai.
Hirco floated on the London Stock Exchange’s Alternative Investment Market (AIM) in 2006. It was the largest initial public offering (IPO) of the year, raising £ 370 million ($ 595 million) and co-incidentally the largest ever real estate IPO on AIM. The firm has been developing property in India for more than a quarter of a century. The firm pioneered the concept of large-scale integrated townships and self-sufficient communities that provide the highest lifestyle standards at an affordable price. It lays claim to being the largest residential builder in India. Hiranandani Palace Gardens continues Hirco’s tradition of distinctive architectural designs and a high percentage of green space.
| Retiring to India
To many NRIs and POIs the question of where to retire may seem strange. Many will automatically choose to live close to their children or to other family members. However, the Indian population overall is becoming increasingly mobile and affluent. These factors mean that more and more people are actively reconsidering their retirement. Properties originally bought as ‘investments’ may now be being considered as potential retirement homes. So the question then becomes, given the size of the country, to where might you consider settling down in your ‘golden years’?
There are some simple criteria to consider, according to online blogger Retire2India:
- Good location with interesting local activities and places to explore.
- Good infrastructure, including medical facilities. A significant retiree population is a plus. This eliminates some of the more exotic locations.
- Not excessively crowded – ruling out most of the bigger cities.
- Safe, with a cosmopolitan outlook and open to outsiders. A sizable expatriate population is a plus.
With those thoughts in mind, here’s brief list of potential areas for retirees to India to consider:
- Chandigarh – the capital of the northern Indian states of Punjab and Haryana. Unlike much of urban India, with pedestrian plazas, fountains and grid-pattern streets, Chandigarh has one of India’s highest per capita incomes.
- Coimbatore – located in the southern state of Tamil Nadu. Already a magnet for Indian retirees, Coimbatore is close to the popular hill station of Ooty and is known for its good hospitals.
- Dehradun – located between the Ganges and Yamuna rivers with the Himalayas to the north. Dehradun has beautiful scenery and a moderate summer climate.
- Goa – the former Portuguese colony located on the Konkan coast. A well-known tourist destination, renowned for its beaches, Goa has a fine climate and is already home to a growing number of European expats and returning NRIs.
- Himachal Pradesh – a state in north western India. Popular destinations in this state, already known as the starting point for those looking to experience the Himalayas, include the state capital, Shimla, the home in exile of the Dalai Lama, Dharamsala, and the ski resort of Manali.
- Kerala – the southern state of origin of many of the UAE’s NRIs and POIs. Kerala is already experiencing and influx of Indian retirees as many expats return to their home state.
- Mangalore – the port city of Karnataka. Beaches, temples, rolling hills and rivers make for a heady mix for this city on the west coast of India on the Arabian Sea.
- Mysore – another popular destination for tourists. This city has become one of India’s growing centres for IT companies, benefitting from the rising affluence that the influx of money has brought.
- Pondicherry – a former French colony. The French influence can still be felt in Pondicherry. The city also has good infrastructure and medical facilities.
- Pune – located in the state of Maharashtra. Pune, the largest city on this list, has, like Mysore, benefitted from the growth of the IT industry. It is close to the hill stations of Lonavala, Khandala and Panchgani.
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| Not NRI? Can you still buy?
If you are not an NRI or a POI but you are considering purchasing property in India, you have a rather significant hurdle to cross in the shape of the Foreign Exchange Management Act, 1999, which states that persons not resident of India and not of Indian origin cannot own property in India.
However, this is not a wholly insurmountable problem. Foreign nationals who are not NRIs or POIs may own property in India provided that they satisfy the residency requirement – 183 days in a financial year. Investing in Indian property from abroad is therefore ruled out but you may still look to India as a potential retirement destination.
A foreign citizen who is a resident of India may buy and sell properties without prior approval from the Reserve Bank of India, subject to a general ban on citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan and restrictions on the purchase of certain types of property.
You may lease property in India for up to five years without requiring specific permission from the Reserve Bank of India. However, be aware that the 180-day limit on tourist visas is being scrutinised more closely now than it used to be. The Indian authorities, it is said, no longer turn a blind eye to those who attempt to renew without actually leaving the country.
Do not get involved with anyone claiming they can help you buy a property without having to gain residency. This will only come back and bite you in the wallet! Indeed anyone purchasing a property without sticking to the letter of the law may find themselves losing their investment and their Indian home.
One loophole that a number of people have attempted to use is through setting up a company in India. It is legal for a company that meets FEMA regulations to acquire and hold property. However, the authorities are wise to this wheeze and the said property must be 'necessary for or incidental to carrying on... business'.
India has much to offer to those considering it as a retirement destination and, of course, if you take up residency status, you may then consider property in the country as an investment as well.
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| Financing Indian property
Several banks offer property mortgages in India. Among them, Bank of Baroda, which claims that ‘NRIs need not go to India, we bring India to them’, is the only Indian bank in the UAE to hold a full banking licence from the Central Bank of the UAE and has had a presence here for the last 35 years. Once a housing loan is sanctioned for the purchase of Indian property through the bank’s Indian branch, you may arrange a Margin Money loan through one of its six branches in the UAE for loans of up to AED 250,000 ($ 68,000) for up to 60 months. Bank of Baroda also offers a Baroda Home Loan for NRIs/PIOs for up to 15 years based on an income multiple – 48x monthly income if salaried or four times average annual income for the self-employed.
ICICI Bank’s NRI India Home Loan is available for up to AED 480,000 ($ 132,000) and a maximum loan tenure of 10 years. It may be used to buy or build a new home or purchase land.
Meanwhile, Citibank NRI’s Rupee Checking Account allows you to pay bills associated with your Indian property, such as electricity, water and Insurance payments online using Citibank Bill Pay. To be eligible for a Citibank Home Loan you must also have a close blood relative residing in India, who will be a co-applicant to your loan. Citibank offers loans of up to INR 50,000,000 (INR 5 crores – approx. $ 1.25 million) for up to 15 years (20 years for loans up to INR 2 crores).
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