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Step by Step NRI guide to Buying Property in India

Are you living far away from India in countries such as USA, UK, UAE, Australia, Canada, Japan, Saudi Arabia, Singapore, etc? Do you wish to purchase a property in India in your native hometown or in a city where development is taking place at a rapid pace and you want to cash in on the possibility of higher rate of returns? However, as an NRI or PIO, you just happen to visit India once in a year. And most of the times, your schedule is so tight that you end up delaying your property buying decision to next year.

So, how do you make sure that next time you visit your native place in India; you actually end up buying that elusive property which you have been planning for some time now? All of it is possible, only if you have done the ‘preparatory work’ or the ‘work in the background’ before you even touch Indian shores. And what is that ‘preparatory work’? Here it goes:

Step Number 1 – What kind of Property can an NRI or PIO buy?

As per the guidelines issued by Reserve Bank of India, an NRI or PIO can invest in any residential or commercial property. The guidelines also state that one can buy any number of residential or commercial properties. However, they are not permitted to invest in farm house, plantation land, and agriculture land. Click on the link here to find the Definitions of a Non Resident Indian (NRI) and Person of Indian Origin (PIO).

Step 2 – Documents that you need to buy Property in India:

Following documents are required:

  • Passport (for an NRI)
  • PIO or OCI Card (for PIO and OCI)
  • Address Proof
  • PAN Card (Permanent Account Number)
  • Passport Size Photographs

Step 3 – Where should an NRI/PIO buy the Property? Or in other words – Location:

Having understood the RBI guidelines and documents that are required to buy a property in India, now, you need to decide on the location. If you wish to buy a property in your native town for your parents or for your end-use, then, look no further, but just focus on the master plan of this city and see where new real estate development is taking place. Master plan is a key document that tells you how the city will shape out in 10 or 20 years from now.

However, if you are looking to buy the property from an investment’s perspective, then, you need to compare different cities in terms of their population, population growth, type of industry, real estate price appreciation in last few years, and master plan of those cities. All of this information is easily available online.

Step 4 – How much money you can invest in? Or in other words – Investment size:

Having done the location analysis, next step is to see the size of the investment that you can manage. There is no point stretching your resources. If you have accumulated resources over a period of time, then, there is no need to carry out the cash flow analysis. However, if you are going to avail home loan, then, as a thumb of rule, one must do the following calculations:

  • For an NRI/PIO, Let’s assume your household take-home monthly income is = US$ 5000 (Rupees 3.4 Lacs approximately).
  • Out of which, approximately, 30% (depends on your lifestyle) can be utilized to pay EMI, which is = Rupees 100000 approximately.
  • The home loan that any bank in India will be willing to sanction given your current income level is = Rs 1 Crore (assuming rate of interest rate in India is 10% and duration of home loan is 20 years). It’s a rough estimate based on the fact that for an EMI (Equated Monthly Installment) of Rs 1000, one can avail Rs 100000 amount in Loan at 10% interest rate for duration of 20 years.
  • The property value that you can afford = Rs 1.25 Crore (As per RBI policy, 80% of property value can be financed and rest 20% has to be paid from own resources).

Step 5 – Rupee versus the Currency in which you earn your income in a foreign country:

As an NRI or PIO, it is very important to notice the trend of Rupee versus the currency in which you earn your income. If the Rupee is falling against the currency in which you earn, then, it’s an ideal situation for you to buy a property in India as it will come at a discount to you. However, if Rupee is gaining, then, it’s going to be expensive for you to invest in property in India. Moreover, banks will also sanction the home loan accordingly. Below is the chart that showcases the trend of Rupee versus other major currencies.

Fall of Rupee Vs Dollar-Euro-and-British Pound

Data Source: Reserve Bank of India (RBI)

Step 6 – Selection of Real Estate Developers:

Next step is to identify the list of real estate developers. Ideally, you must not select more than 3 developers. Following parameters shall be kept in mind when deciding upon the list of property developers:

  • Visit property developer’s websites and see how many projects they have delivered thus far.
  • Visit online real estate platforms to read reviews about those developers and their past & current projects.
  • Verify which banks or housing finance companies are sanctioning the loan for the project that you wish to invest in. Banks and housing finance companies have the resources and manpower to carry out project due diligence and only then they approve the project for loan sanctioning. If 2 or 3 major banks have approved the project, then, it is highly likely that project has all the necessary approvals and land titles are clean.
  • Recently, Government of India passed the Real Estate Bill. This means, a developer cannot launch a project until the developer has all the necessary approvals. Ask for those approvals from the developer. Some of documents that you can insist upon are commencement certificate, License number from the relevant town planning department, Approved Layout of the Project, Bank authorization letter, etc.

Step 7 – Property Valuation:

Now that, you are almost there, do not overlook the valuation part. Yes, even though, you are not a property valuation expert, you can still do a quick property valuation analysis using the below techniques:

  • Online sales comparison approach

  • Let’s assume you have decided to buy a 1500 square feet 3BHK apartment in Andheri west in Mumbai from a reputed developer. Now, you need to gather information of all other highly similar under construction projects within Andheri West. You can get that information from various online platforms. Compare the prices of other projects with the project that you have chosen. If you are paying more, then, you need to ask, why? Is the developer providing more luxury features in your project? Or is it best located? Or the developer has sound track record of delivering projects on time than many other developers in the area? If answers to these questions are ‘Yes’, then, you can go ahead and invest in the project. If no, then, negotiate hard with the developer to get the comparable price.

    Similarly, if you are getting something at below prices than what is being offered in many other similar projects, you need to ask, why? Are there any litigation issues with the project? Amenities offered are sub-par?

    One should compare an under-construction project with other under-construction projects or a completed project with other completed projects. Likewise, compare primary market pricing of one project with primary market prices of other projects or resale price of one project with resale pricing of other projects.

  • Cost approach

  • This approach involves determining the land value and then adding the cost of construction to it. In other words, it’s like constructing your own house on an authorized plot. However, this approach may not be practical because of unavailability of required size of plot within the locality that you may have chosen. Therefore, one must focus all his/her energies on online sales comparison approach.

Step 8 – Transfer of Funds:

Since you are a Non Resident Indian (NRI) or Person of Indian Origin (PIO) or Overseas Citizen of India (OCI), how will you transfer funds to India to buy the property that you have selected? As per RBI policy, an NRI/PIO/OCI can make the payments for purchase of residential or commercial property in India

  • By remitting funds to India using normal banking channels or
  • By using funds that are held in NRE/NRO/FCNR (B) accounts
  • Kindly note, no payments can be made by using foreign currency notes or traveler’s cheque

Step 9 – Home Loan:

As an NRI/PIO, you can avail home loan from authorized Indian banks or housing finance companies to buy residential accommodation in India or for the purpose of renovation / repairs / improvement of residential accommodation. The EMI on such a loan can be paid by way of remittances through

  • Normal banking channels or
  • By debit to NRO / NRE / FCNR (B) account or
  • By rental income generated from the property or
  • By your close relatives through their normal bank accounts in India by crediting the required amount in your bank account

Step 10 – Power of Attorney (POA):

In case, you can’t be present at the time of signing of allotment letter or sale agreement, then, you can grant a Power of Attorney (POA) to your close relative in India. There are 2 kinds of Power of Attorney (POA); General Power of Attorney allows the Grantee to carry out many transactions on behalf of the Grantor, whereas, Special Power of Attorney allows Grantee to carry out only specific transactions.

Power of Attorney needs to prepared on the stamp paper (or any applicable paper in the country where you are located) in the presence of Indian consulate officer or the authorized notary in that country. After that, it should be sent to India and the Grantee shall present this to the registrar office within 3 months to officially register the Power of Attorney.

Step 11 – Rent out or Sell your property including income tax implications:

Having now presented the property buying process in detail from an NRI/PIO’s perspective, we will cover the renting and selling part including the income tax implications in the next article. However, here are key points as far as taxes are concerned:

  • For acquisition of Property in India, an NRI/PIO need not pay any taxes.
  • For selling the property in India, an NRI/PIO needs to pay taxes on short term or long term capital gains. If you are selling the property within 36 months of purchase, then, short term Capital Gains Tax will be applicable. However, if you are selling the property after 36 months of purchase, then, long term capital gains tax will be applicable.
  • Taxes on Short term capital gains are based on your income slab.
  • Taxes on Long term capital gains are flat at 20%.
  • Income generated by renting out the property is also taxable if the income generated is above the exemption limit for the given financial year.
  • One needs to have a PAN (Permanent Account Number) for filing income tax in India.

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