NRIs Alert! Buying property in India? The guidelines

Buying property in India

What can be better for an NRI than having a hand in the growth and prosperity of his motherland? 

Perhaps nothing is better than it. It motivates NRIs to invest in India.

NRIs buy property in India as 

  • It helps them to stay connected to their roots
  • It is an investment opportunity 

Investment decisions are generally guided by profit motives and regular returns besides sentiments for some.

Buying property in India always involves a good understanding of the market conditions and the current economic scenario in the country chosen for investment.

Still, the decision is not easy. There might be a series of questions/queries in mind before deciding to invest in India, like:

Read More: HUF property and its partition by Coparceners

Where can you invest?

NRIs can buy any immovable property, whether residential or commercial. No permission is required to be taken from the Government of India or RBI. There is no need to intimate RBI about this transaction. There is no restriction on the number of residential or commercial properties which NRI can buy.

However, special permission of RBI is required for buying agricultural land, plantation property or a farmhouse in India. 

How to make the payment?

NRIs buying the property can make the payment

  • By remitting through proper banking channels from abroad.
  • By availing home loan for buying residential property, for the renovation of an existing property or construction on a plot– the loan amount will be transferred directly to the seller’s or developer’s bank account. The payment is made in Indian currency. 
  • By using funds in the NRE/NRO/FCNR accounts. Even housing loan if availed is repaid using funds from these accounts.
  • No payment by travellers cheque or foreign currency

Read More: Protection of inheritance rights of women and varying succession laws

What documents are required for buying a property?

Documentation part has become very easy to facilitate investment by NRIs. You need to have:

  • A valid passport
  • PAN card 
  • Latest photograph 

Other documents that are prescribed by RBI from time to time. 

Whether any loan is available for NRI for buying a property in India?

RBI has issued general permission to all banks to provide loan facility to the NRIs for purchase of property in India. 

Generally, a home loan is availed for purchase of the residential property.

In case of purchasing a house, general precautions like the title is definite, and property is free from all encumbrances etc. should be taken.

Can the property be purchased through power of attorney?

Property in India can indeed be purchased through a power of attorney if an NRI cannot be physically present in India. There is a proper prescribed procedure to authorize someone through the POA. It is routed through the office of Indian Embassy in the country of residence of NRI. 

Read More: Opening an NRO Account – steps, details, requirements

Can a property be purchased jointly?

Yes. An NRI can buy a joint property with another NRI. But not with any person who is not authorized to invest in India.  

There are no specific guidelines issued under FEMA for purchase of property by NRIs jointly with resident Indian. It depends upon case to case. 

What are the taxation rules for NRIs buying property in India?

NRIs can earn income from investment in the property either in the form of rental income or capital gains. (Capital gain is income earned by sale of property in India). This income is taxable. 

Under DTAA (Double Taxation Avoidance Agreements), an NRI can claim the tax credit in his country of residence, for taxes paid in India.

Tax benefits on purchase of the property are the same for both NRIs and resident Indian. Deduction of Rs 1.00 lac u/s 80C of the Income Tax Act as available to a resident is also available to an NRI.

Read More: Sale deed: What you should know!

The income tax rate is 1% (TDS) of the value of the property if the value of the property bought is more than Rs 50 lacs. The rate is higher if the seller of the property is also NRI. 

If NRI avails home loan to buy a property, the interest paid on loan is deductible from the taxable income.

Last but not least: Buying a property in India by NRI does no longer remain a difficult task. It has become lucrative to invest in India these days. RBI and FEMA guidelines and policies are supportive. 

Can NRIs buy property jointly with resident Indian?

Joint Property - Can NRIs buy property jointly with resident Indian

Some things in this world are still going fine jointly! Take property ownership in India, for instance – especially when we live in a country where the property is still one of the most coveted ways to connect with your roots.

For NRIs, purchasing a property in India is much more than an investment opportunity. It is a way of seeking connections to the native place – and also to find a ‘home’ for oneself. 

It helps if the property ownership is joint with a known relative or friend who is a resident Indian. 

Read: Saving yourself from fraud while buying or selling a property

What do you keep in mind while buying property jointly?

  • As with other things, the purchase of property by NRIs in India is also governed by guidelines issued by RBI. 
  • While the RBI has issued General guidelines for purchase of property by NRIs also, in some cases, special permission from RBI or approval from Government is required before making an investment in the immovable property by NRI.
  • RBI allows NRIs to jointly own a property with another NRI or a resident Indian. 
  • However, in cases where the resident Indian is otherwise ineligible to buy property, then the NRI will also not be allowed to buy the property with that resident Indian (irrespective of the financial contribution of the other person). 

Remember:

  • Residences or commercial property can be bought by NRIs freely. 
  • There is no restriction on the number of properties that can be purchased. 
  • There is no requirement of obtaining any specific permission in such cases and also no need to send any information to RBI for this purchase. 
  • There is no need to file any document with RBI in this regard. 
  • In case the interested NRI is unable to come to India for completing the property purchase, the same process can be carried out by giving a special POA (Power of Attorney) to another person. 

But,

  • For the purchase of any agricultural property or a farmhouse or plantation, NRIs need to apply for specific permission from RBI. 
  • However, NRIs can inherit the same from any resident Indian.

Read: Transfer of Property on the basis of Registered or Unregistered Will

What does the FEMA say?

  • There are no specific guidelines under FEMA for purchase of property by NRI jointly with resident Indians.  
  • An NRI is allowed to sell or gift any immovable property to any resident Indian. 
  • Any property can be gifted to NRI by an NRI other than agricultural property, plantation or a farmhouse.
  • The restrictions which apply to NRIs for purchase of agricultural property, farmhouse or plantation continue even if it is a joint purchase.  
  • The transactions have to be routed through proper banking channels under FEMA and RBI guidelines.
  • For all purposes of investment in real estate, NRIs are treated at par with the PIOs.

Read: How to obtain probate of a Will

What if a person becomes an NRI after buying property in India?

  • In case an individual has bought property in India and acquires an NRI status after that, he can continue holding the property
  • All taxes will apply to the property as per the laws of the country

So Yes! Relax NRIs – You CAN buy property jointly with resident Indians or other NRIs. Make sure you adhere to RBI and FEMA rules regarding the same. 

Importance of Due Diligence and Title Search before Property Purchase

Importance of Due Diligence and Title Search before Property Purchase

Due diligence and title search play an important role in real estate/property transactions.  People approach us and often have the following queries.

What is due diligence and Title Search before property purchase?

It means taking all precautions and ensuring that investment in a property is safe and secure.

By exercising due diligence:

  • The buyer identifies and evaluates all types of risks involved in investment
  • The buyer tries to rule out/minimize these risks

How do we go about it?

Due diligence implies:

  1. Scrutiny of title:

Title Search relates explicitly to the search of ownership and the rights of the owner to sell the property. Two kinds of title search reports are there.

  • Full Search – The title of the property is searched for a period of previous 30 years.
  • Limited Search – The title of the property is searched for a period of previous few years (less than 15 )

The search report is prepared depending upon the nature of the transaction. The title search is a very crucial part of due diligence as the defective title leads to no transfer at all.

Also Read: What is a Sale Deed? Legal Importance and Registration Process

B. Search for the right of the owner to sell the property:

The owner must be capable of transferring ownership. The buyer has to ensure that there is no restriction to the power of alienation of the owner. The limitation can be there:

  • If the owner is a minor or a person of unsound mind. Such a person can sell through guardian or a person so authorized.  
  • The owner is not having an absolute right in the property.
  • The owner is a lessee or a tenant.
  • Statue does not permit sale of the property.

Which records are searched?

  1. The records maintained
  2. at Sub Registrar’s office
  3. with Tehsildar (mutation and Jamabandi)
  4. records maintained by Registrar of Companies
  • Title deeds – Gift deed, Will, Lease Deed, Sale Deed etc

 What is the significance?

There are many reasons to exercise due diligence before purchasing a property:

Also Read: How to cancel Illegal Registration of ancestral property

  • Increase in the number of frauds – There has been an increase in frauds related to real estate. Due diligence involves verification of documents, title and ownership rights to ascertain the authenticity of the same and therefore, helps to prevent fraud.
  • Cost of investment – People invest hard-earned money or a huge amount of loan in real estate. Due diligence is required to safeguard the funds being invested. As stated above, risks are identified, evaluated and minimized by due diligence.
  • Disputed property – Before buying a property, buyer has to ensure that the property is not involved in any litigation. If there is any court case pending concerning the property or the rights of the owner, it can pose hardships later for the buyer. The buyer is bound by the decision of the court, which may or may not be favourable. 
  • Encumbrances which affect the value of the property– The property intended to be purchased must be free from all types of encumbrances like
    • Mortgage
    • Lien
    • Charges due (utility bills, tax payment or any other statutory payment)
    • Litigation

A certificate in this regard is issued by the Office of the Sub Registrar. The buyer must inspect the original title deed as it is deposited with the Bank if there is any loan against the property.

Also Read: What To Do If Your Property Possession Has Been Delayed?

  • Easement Rights/ Acquisition process affect the interest of the purchaser: The property might be having
    • an easement right (right to have a passage through the land)
    • covered under acquisition scheme of the Government.

The buyer must check for the same. It affects the returns from investment.

  • Necessary Approvals – A buyer must ensure that the owner has obtained necessary approvals from the authorities. Approval is granted if the statutory requirements have been fulfilled. 

LEGAL ASSISTANCE

It is advisable to get legal assistance for the search of records and verification of documents.

Before you Buy a Property in India

Buy a Property FAQs

To buy a property or land that’s for sale in India is a great investment opportunity but there may be some questions that arise while making the decision. Some of the questions and their answer are as follows:

How can one acquire ownership of a Property or land that’s for sale in India?

One can acquire ownership of an immovable property in any of the following ways:

  • By inheritance of ancestral property
  • Through Will
  • Acquisition by oneself such as purchase etc.
  • Through gift, trust, settlement deeds
  • Grant by the Government
  • Through partition deed
  • Through decree of Court

In simple words, there are two ways of acquisition:

  • By the act of parties.

Example: Purchase, Gift, etc.

  • By operation of law

Example: Inheritance, the decree of Court, etc.

What are the things to look for when selecting a Property or Land for sale in India?

There are various aspects that the buyer should consider at the time of selecting the property. The major factor is price which is governed by demand and supply and may vary on a project to project basis other than this the other concerning agents are –

  • the budget
  • the type of property
  • the location
  • the objective of buying

What are the various documents involved to buy a property?

It is important to know all the documents involved in the process of assets.

1.  Check

  • that the Title is in the name of the developer/builder
  • the builder has all the licenses, approvals, development rights
  • the marketable title of the development
  • the provisional layout or building plan of the property
  • the strength of the foundation of the property
  • the carpet area of the asset, Built-Up Area & Super Built-Up Area
  • if the allotment letter or the sale agreement was duly executed
  • if the project is approved by reputed financial companies which can help in getting financial loans if required

2. Ensure that the conveyance deed is registered. The deed is a signed legal instrument that shows a deed or title has been transferred. It is signed, witnessed, and notarized by the seller and the buyer

3. Ask for Completion Certificate

Checking all the documents related to the property is imperative to buy a property or land that’s for sale in India. The documents such as Deed of Conveyance, Land registration status, Mutation Certificate, Land Sanction Plan/layout, and Payment Schedule along with the origin of the property,  Occupancy Certificate, various sanctions from the authorities, the chain of Title, Completion Certificate.

What is a Sale Deed?

  • The Sale Deed is a legal document which transfers the ownership of the property or assets in exchange for consideration or a price paid from seller to the buyer.
  • This instrument has to be mandatorily registered with Sub-Registrar office following this ownership gets transferred to another person.

What is meant by Carpet Area, Built-Up Area & Super Built-Up Area?

  • Carpet area is the precise area enclosed within the walls, i.e., the exact area to lay the carpet (wall to wall). This space does not include the thickness of the inner walls. It is the area that one uses.
  • Built up Area are the carpet area and the thickness of outer walls and the balcony.

Super Built up Area includes all the area that is considered as common area and the built up area. Areas regarded as common areas are the lobby, lifts shaft or elevator, staircase, the corridor outside the flat, etc.