Buying and selling property in times of Coronavirus

Buying and selling property in times of Coronavirus

The first and foremost thing to do while buying and selling a property in times of coronavirus is to ensure safety and take all precautions while inspecting the property.

Investment in property has always been marked with uncertainty. The fear of unknown looms large in case of real estate investment. It is more so today in times of coronavirus where the normal life itself seems far away.

Recommended reading: Property Encroachment

Prevalent situation:

  • With coronavirus around, job security has become a significant factor for buyers. One would prefer a loan to buy a property only if the regular flow of income is ensured. Even banks will hesitate to provide a loan if the current job does not depict the steady future flow of income and repayment is doubtful.
  • Buyers are avoiding site visits and postponing the decision to make real estate investment.
  • The property prices have not fallen as expected due to Coronavirus. Prices have remained stagnant as builders have maintained the prices although there has been a fall in demand. There is hope for revival. The low price is negotiated on case to case basis in places like Mumbai, Gurgaon.
  • The falling prices favour buyers. Those who have finances available with them can buy property now. On the other hand, sellers may not like to sell at this time. For them, wait and watch is the best policy. However, some sellers may opt to reduce prices to get through the sale.
  • Coronavirus has brought to halt the construction services as well as sales. For the ongoing projects, the buyers doubt if the developers would be able to meet the deadlines. The developers have reduced prices to some extent, depending on the profit margins. There are attractive offers like flexible payment schedules. However, the same is not helping much, as jobs have been hit hard. Consumer sentiments are playing a more significant role than the prices.
  • Coronavirus has led to work from home on a large scale. The demand for office space has reduced. It has impacted the buying of property for office stations at least for present times. It can even affect the future commercial real estate deals as many companies are thinking of reducing their infrastructural cost.
  • The measures taken by the government to inject the liquidity and simultaneously the policy of the bank imposing moratorium on loan repayment will help the developers and buyers in cash flows.

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Consumer sentiments and Property price both have a role to play. If buying and selling a property is need driven, an individual will go ahead although carefully. If buying or selling of property is for investment purposes, one has to analyze various factors which influence the decision process even during a pandemic like Corona.

During this pandemic the following factors have to be kept in mind:

  • the current price of a property
  • current interest rates
  • bank policies for advancing loan
  • expected growth of the property market
  • revival of economy
  • Governmental assurances and policies
  • Job security – ensuring a regular flow of income

Ultimately what will happen in property markets depend upon consumer sentiments, job security and government policies.

As a top legal property management firm, we assist NRIs in property search and help them in all the property solutions. Our real estate services caters exclusively for the NRI investors wanting to buy and sell property during these unprecedented times. Contact NRI legal services for free legal advice on matters of sale and purchase of property.

Recommended reading: NRIs and Commercial Property

We provide an extensive range of services for residential, agriculture and commercial property’s sale and purchase. Even in these COVID times, our legal firm, with all the precautions, is trying to assist the Indians settled abroad to get their property related issues resolved to their benefit.

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What benefits budget 2019 has for NRIs

NRI Budget 2019

NRIs have a reason to feel happy and relieved with the new Finance Minister Nirmala Sitharaman’s Budget for the year 2019.

For a start, their welcome into the country just became warmer! The Union Budget of 2019 has proposed to consider issuing the Aadhaar Cards to NRIs (who have Indian Passports) post their arrival in the country.

  • Fast process for Aadhaar Card
  • Easy NRI investments
  • More Indian Embassies and High Commissions
  • Global Investors Meet in India

Till this budget, NRIs had to wait for a period of 180 days. Earlier under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, NRIs who have resided in India for a period of 182 days or more in 12 months and with an Indian address could apply for Aadhaar.  The issue of Aadhar card to NRIs on arrival to India will help NRIs to a great extent as aadhar card acts as both identity card as well as proof of address as it consists of both demographic and biometric data.

The Finance Minister declared “I propose to consider issuing Aadhaar card for non-resident Indians (NRIs) with Indian passports after their arrival in India without waiting for the mandatory 180 days.”

NRIs interested in investing in India can also heave a sigh of relief now – our Finance Minister paved the way for them to have easier access to Indian equities. The NRI-Portfolio Investment Scheme Route has now been merged with the Foreign Portfolio Investment Route. 

In addition, with NIIF as an anchor, there will be annual Global Investors’ meet organised in India. This is being done to encourage major global investors to come and invest in India. Moreover, there are steps to open Foreign Direct Investment in aviation, media, animation AVGC and also to open up FDI up to a 100% level for insurance intermediaries. This will bring in a single regime for foreign investors. It also seeks to regulate investments and funds brought in by the non-resident Indians and person of Indian Origin.

The move on the FPI aspect has come about as part of the recommendation of the H R Khan Committee. The economy can be assured of larger pools of NRI capital through pooled and professionally managed structures. Foreign Portfolio Investment refers to the grouping of assets including bonds, equities and cash equivalents. These portfolio investments are held directly by an investor or managed by financial professionals.

In the past the cap on NRI participation through the FPI route had received serious push back from global fund managers. As reported in the media, the Securities and Exchange Board of India said if single and aggregate NRI/OCI holdings in assets under management of FPIs are below 25% and 50%, respectively, then such persons will be allowed to be constituents of the FPI. In case of breach, the FPI will need to comply within 90 days and in case it remains non-compliant even after 90 days, no fresh purchases will be permitted and such FPIs will have to liquidate their existing position in the Indian securities market within 180 days.

This move on FPI will bring in additional benefit since earlier in the year, SEBI came out with the rules for the merger and also exempted both housing finance and non-banking financial companies. From now, none of them will have to disclose the rise and fall in the shareholding due to encumbrance or release of encumbered shares. Currently, only the scheduled commercial banks and public financial institutions are exempted from disclosures.

Government Initiatives and NRI Investments in India

NRI Investments in India

Non-Resident Indians (NRIs) have always found real estate an attractive investment option. Their attraction comes not just from the financial aspects, but also from their intense desire to have a connection to their roots. The reasons for NRI investments in India could be many, and vary from providing a better lifestyle for the family to attaining a return on the investment.

Over the past few years, though investment in India has increased significantly, we have seen the hesitation in the process by the NRIs. The government of our country has implemented RERA, GST and Benami Transactions (Prohibition) Act to help remove this uncertainty.

But before understanding how the steps taken by the government will help increase NRI Investment in India, it is important to know what affects the decision of the NRIs. Specifically, what is it that concerns them about investing in India?

Common concerns that affect NRI Investments in India

Investments in India NRIs

The underlying concerns of the NRIs investing in the country are as follows:

  • The unclear (obscuring) nature of the real estate sector
  • Lack of information regarding property matters
  • No concept of diligence in implementation
  • Untimely delivery of the projects by developers
  • Lack of follow-ups by the developers
  • Fraud in both the construction and the documentation
  • Delay in legal, confirmed possession

These problems have acted as a deterrent for the NRIs to reduce their investments in the country.

Can we count on steps such as RERA, GST or Benami Transactions (Prohibitions) Act to address the concerns mentioned above.  As an assurance, one can say that the rules and regulations that have been laid down under these Acts have most certainly taken care some of the issues.

Initiatives were adopted by the government to increase NRI Investments in India

RERA (Real Estate Regulation Act)

  • RERA was implemented with the aim of ensuring that the real estate sector becomes transparent, corruption free and the rule breaker could be held accountable.
  • The provisions of this Act will make sure that the buyer is well protected, there is no delay or untimely delivery of the projects, and no one can commit fraud.
  • Along with it has been ensured that there is a speedy grievance redressal system.

GST (Goods and Services Tax)

  • GST is the biggest tax reform introduced in India. Its aim is to eliminate the difference in the indirect taxes that apply to different states.
  • The benefit of GST for the real estate sector is that it will provide clarity on tax-credits and ultimately reduce the price of properties.

Benami Transactions (Prohibition) Act

  • The Act provides an efficient administration for the prevention of benami transactions.
  • The Act has given powers to the specified authorities to seize the benami properties provisionally.
  • Under this law, if an individual is found guilty of possessing Benami Property by the court, he will be held accountable with imprisonment for a term that may vary from one year to seven years and shall be fined (which may extend to 25 percent of the fair market value of the assets.

For NRIs, the investment opportunities have significantly improved with the GST, RERA, Benami Act, and other initiatives being taken by the government like demonetization. These measures have promoted transparency and a corruption free system. NRI Investments in India are one of the major contributions in the Indian economy. The liberalization of rules under FEMA along with the various steps taken by the authorities is helping in boosting it.

Real Estate Investing in India – The way to do it

Real Estate Investing in India-the way to do it

Whatever be the state of the politics or society in a country, real estate investing has a potential attraction element that doesn’t get lowered in the long run. This is something that is of immense interest to NRIs too. India evokes great interest for property investment. The same logic applies to the NRIs too.

But NRIs often get confused on how to buy property and what their gains could be.

While real estate investing in India is gaining interest there are somethings NRIs have to keep in mind. They don’t need RBI’s permission to invest in India. They just need passport, address proof, PAN Card and photographs to make an investment. The NRIs cannot invest in Agricultural, Plantation and Farmland Property.

The rules or the ways of investing in property are not always crystal clear to the overseas citizens. Moreover, they are never too sure about how profitable this investment can be for them.

NRIs are individuals who have been residing in another country for a consecutive 180 days and hold an Indian passport. So what property can the NRIs invest in?

Agricultural, Plantation or Farmland property is not permitted for NRI investment.

NRIs needn’t take permission from RBI for this.

Their passports, address proof, a PAN card, and photographs are required for this.

How do NRIs finance the buying of property?

  • They can issue cheques from their NRE or NRO accounts.
  • If they have any deposits in their Foreign Currency Non-Resident Accounts ( FCNR), they can buy property using these funds too.
  • Overseas currency brought to India through the legal bank channels.

What does one keep in mind about the POA?

More often than not, NRIs find it tough to travel again and again to India. They are on the lookout usually, for somebody who can handle their property matters so that it becomes convenient for them.
In these situations, they give a power of attorney to some relative or friend who can sign the real estate investment contracts on their behalf.  Any POA that is made must be signed in the presence of either a notary or a consulate officer.

Repatriation and Taxation

  • Repatriation implies the funds that are sent abroad after a transaction takes place – sale proceeds from the property sale.
  • This would entail converting the Indian rupee to foreign currencies.
  • Taxes aren’t supposed to be paid unless there is a rental income involved.
  • If the property is sold, then a capital gains tax would be applicable. This could be short term or long term one.
  • The tax is short term if the property is sold on a profitable basis within three years of buying. The tax is imposed on the seller according to the income tax slab rates.
  • If the property is sold after three years, then long term capital gain is applicable.
  • In cases where a new property is bought within a specific number of years, then tax is waived off.

Rental Income Taxation

  • Rental Income is, of course, taxable. Appropriate taxes are to be paid using the PAN details.
  • In cases where the NRI owns two or more properties then only one would be taken as rented property. Then taxes would have to be paid on that particular property only.
  • But it needs to be remembered that just like other Indians, NRIs can also show 30% of their rental income as maintenance costs.
  • However, tax doesn’t have to be paid on the income in the resident country of the NRI – though it is better to declare the income in the resident country.

Loans and the related tax benefits

NRIs can obtain home loans. There are a variety of products depending on the special needs of NRIs – whether it is investing in property such as buying a house or even building a house or anything more. Most Indian banks offer speedy and convenient tracking of loan applications.

It is crucial for NRIs to fully comprehend the financial scenario of the country before they decide to invest in property. Real estate investing requires astute business acumen and awareness about the legalities involved. More on these details, in the forthcoming blogs.

Investment Options for NRIs

Investment-Options-for-NRIs

India is working towards creating a transparent and clean economy. The government is making several changes and introducing new rules and regulations to achieve its goal of becoming an advanced country. The advancement of a country requires a lot of cash flow, and foreign investment is one of the many sources of cash inflow.

Indian government encourages investment in India from abroad. The Non-Resident Indians (NRIs) are the direct sources of cash inflow in India. With the passing time, the NRIs have shown a keen interest in parking their funds in Indian Investments. The Foreign Direct Investment (FDI) that can be brought through NRI’s is immense. Therefore, to promote foreign investments, the government has simplified the rules and regulations and provided promising NRI investment options which in a way will help boost the economic growth of our country.

The weak position of Indian Rupee as compared to NRIs residing country currency could be beneficial for them in certain cases. Such as in some cases they can earn more returns from their investments.

As such the NRIs are free to invest in different investment options but the transfer of profit to their residing country is controlled. The rules related to return on investment vary for different investment options.

  • In Repatriation Scheme, the profits earned can be transferred back to their country.
  • In Non-Repatriation Scheme, the profits earned cannot be transferred back to their country.

It is essential for NRIs to open a bank account before investing in India. They can manage their returns or profits with the help of these accounts. The government has allowed three types of accounts that NRIs can open in India. They are:

  • Non-Resident Ordinary (NRO) Rupee Account
  • Non-Resident External (NRE) Rupee Account
  • Foreign Currency Non-Resident (FCNR) (Bank) Account

The government of India has provided several Investment Options for NRIs to encourage them to invest in India. Some of the investment options offered are as follows:

GOVERNMENT SECURITIES

  • It is a bond or other type of debt obligation that is issued by a government with a promise of payment when the security matures.
  • These are considered a secure investment option.
  • Dated government securities are medium to long-term securities with fixed or floating interest rate.
  • The NRIs can easily buy these securities.
  • They are just required to transfer the funds to their Indian Authorised Dealer Bank account, and the bank on their behalf can purchase/sell the securities as per their advice.
  • The bank will credit the interest earned on the investment in the account.
  • Some of the dated government securities are as follows:
  • Capital Index Bonds
  • Floating rate government bonds
  • Fixed rate government bonds
  • Zero Coupon Bonds

MUTUAL FUNDS

  • The NRIs can buy units of mutual funds either straight from the issuer or can use online method.
  • The interested NRI is provided with an offer document for reading and understanding the details.
  • After reading, the NRI has to fill a form clarifying the scheme name and number of units of funds he/she wants to buy.
  • The investment in the funds can only be made in Indian rupee as foreign currency is not allowed.

TREASURY BILLS

  • These are short-term (up to one year) borrowing instruments of the Government; it enables the investors to park their surplus funds with less market risk. T-bills are issued by Reserve Bank of India (RBI) at regular intervals.
  • These are released at a discount to face value, but they don’t pay interest.
  • The bills can be bought by participating in the auctions organized by the RBI.
  • At the time of redemption, the investor receives the face value.
  • The NRI can make payments through their Indian accounts.

NON-CONVERTIBLE DEBENTURES (NCD), CONVERTIBLE DEBENTURES (CD), STOCKS

  • An NRI can purchase shares once he/she gets Portfolio Investment Scheme (PIS) approved from RBI.
  • They can also buy and sell shares on the secondary market.
  • Most of the nationalised banks have got approval to offer PIS services to the NRIs.
  • The scheme does not limit the purchase of the shares, but one can also invest in non-convertible debentures, convertible debentures, equity-linked mutual funds.
  • After opening a PIS account, Online Trading A/c and Demat A/c has to be opened. With the three accounts, the NRI is free to trade shares online.
  • An NRI can only sell his/her share after holding them for at least two days.
  • An NRI shall not exceed 5 percent of the paid-up capital of the company subject to an overall ceiling of 10% of the total paid-up capital of the company.
  • The companies issue debentures to public to raise funds and some of these debentures can be converted into shares at the time of maturity.
  • These are known as Convertible Debentures.
  • The Non-Convertible Debentures cannot be converted into shares when they mature.

PERPETUAL BONDS, EXCHANGE TRADED FUNDS (ETF)

  • Perpetual bonds are similar to regular bonds, but without fixed maturity, i.e., they cannot be redeemed.
  • The companies pay fixed interest to the holder of the bonds.
  • The government, banks, etc. who require funds for extended time issues these bonds.
  • NRI’s can purchase Exchange Traded Funds (ETF) by opening an NRI-Trading account and can then trade them online.

MONEY MARKET MUTUAL FUNDS

  • These are short-term debt certificates issued by the government of India just like T-bills.
  • These are secure investments but with very fewer returns.
  • For NRIs the profits earned by these funds are taxable, and the investment money cannot be repatriated to the residing country.
  • The NRI has to inform the bank about the investment plan, and the bank on their behalf seeks permission from the RBI.

REAL ESTATE PROPERTY

  • The NRIs can purchase any domestic or commercial property in India except a farm house or an agricultural land.
  • To buy property they can only make payment from their Indian account.
  • The payment can only be in INR and not in foreign currency.
  • The profit earned on the assets cannot be transferred to their residing country.

COMPANY DEPOSITS

  • The NRIs also have an option of investing in both public and private companies.
  • The organizations are required to confirm a limit from RBI before taking any money from NRIs.
  • After receiving approval from RBI, the company can receive the money directly from the foreign bank or the Indian Account of the NRI.
  • The company has to share details related to money received from the NRI.

BONDS ISSUED BY PUBLIC SECTOR UNDERTAKINGS (PSU)

  • The NRIs can also invest in bonds issued by PSU.
  • They issue bonds when they are in need of funds for expansion or modernization of their business.
  • It is a secure investment option as when Ministry of Finance gives permission to issue the bonds then only they are issued.

With the government providing so many benefits and flexibility in rules of foreign investment the NRIs can take advantage of the opportunity and invest in India without much hassle.