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
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.
Keeping in mind the rapid growth process in the real estate sector and its contribution to Indian Economy the Government introduced the Real Estate Regulation Act (RERA). Their aim was to provide world-class facilities to its citizens by providing a home for all, developing smart cities and making advancements in the infrastructure sector.
The growth in real estate has been resulting in the increase of disposable incomes and hence, the market for real estate in the country. But with the continuous progress in this sector, the people (buyers) have been facing some issues when investing in the property due to the immoral and unethical practices across the country.
Issues such as lack of transparency and accountability of actions of developers affect buyers. Sometimes the problem is on the part of builders, but sometimes it is just due to the delays in the project approvals and dispute resolution that the demand of the buyers and industry is not fulfilled.
This issue called for a reform and supervised real estate sector. The government, therefore, started the process of Real Estate Regulation Act (RERA).
Commencement of Real Estate Regulation Act
The whole process of RERA began with the introduction of Real Estate Regulation Bill by United Progressive Alliance (UPA) in 2013.
- 9 September 2013 – the bill was referred to the standing committee on Urban Development for examination.
- 8 October 2013 – the standing committee heard the briefing of the Ministry of Housing and Urban Poverty Alleviation.
- 6 November 2013 to 12 December 2013 – the standing committee heard all the views of some of the NGOs working in the real estate sector.
- 12 February 2014 – after hearing all the parties and having public opinion the standing committee prepared its report
- 13 February 2014 – committee submitted
- 7 April 2015 – under the chairmanship of Prime Minister, Mr. Narendra Modi, the Union Cabinet gave its approval to the amendments in the Bill
- 6 May 2015 – the Bill was introduced in the Rajya Sabha and then directed it to the standing committee containing 21 members of Rajya Sabha.
- 3 July 2015 – the Select Committee held 17 sittings to examine the bill
- 30 July 2015 – the committee submitted its report to the Rajya Sabha
- 10 December 2015 – the Cabinet accepted 20 major amendments to the Bill
- 10 March 2016 – finally Rajya Sabha passed the bill
- 15 March 2016 – the Lok Sabha passed the Bill, and it received the assent of the President
- 1 May 2016 – the Real Estate Regulation (and Development) Act (RERA) came into force with 59 of 92 sections
- 1 May 2017 – the remaining provisions came into force
It took a little time for the Act to come into effect but once implemented, it can transform the look of Real Estate Sector in India. It is a reform in the real estate sector that will help the government to strengthen the Indian Economy as well as protect its citizens.
The Act covers a broad range of issues in real estate market such as the launch of a project to post sales problems of buildings, apartments, flats, plots, offices, shops and other such properties.
The government of India has been seeking to boost investment opportunities in real estate sector as well as protect the investors, especially NRIs. The Foreign Exchange Management Act (FEMA) which falls under RBI (Reserve Bank of India) governs NRI Property Investments in India. It has laid down specific guidelines for the NRIs so as to ensure they follow the rules and regulations and can take advantage of opportunities provided by the government.
Primary requirements for NRI Property Investments in India
- To invest in any property in India, an NRI should possess an Indian passport.
- An NRI doesn’t need to take permission from the RBI to invest, transfer, dispose or be gifted with a property.
- If an NRI has a foreign passport, he/she can also acquire, transfer, dispose or inherit a property given that it is only for residential purposes.
- An NRI can inherit, receive a gift, or invest in any number of immovable residential and commercial properties in India.
- An NRI can neither invest nor obtain an agricultural land, a plantation land or farmhouse as a gift.
- If the NRI had invested in an agricultural land, a plantation land or farmhouse before he/she was an NRI, he/she can sell the property but only to a resident of India.
- An NRI can transfer or gift an immovable property to a resident Indian or another NRI.
- Before acquiring a property in India, an NRI should meet all the requirements and conditions of both the Income Tax Act, 1961 and FEMA.
- An NRI must possess all the relevant documents such as a PAN Card (Permanent Account Number), OCI/PIO card if any, valid Indian passport, proof of address, passport size photographs to buy any estate.
- An NRI can repatriate the sale proceeds and rental income to a foreign account of his/her choice after the deduction of the Income Tax, and the Capital Gains if he/she has bought the property through the NRE Account.
- The citizens of Pakistan, Afghanistan, Bangladesh, Iran, Sri Lanka, China, Nepal or Bhutan cannot procure or transfer property in India without taking permission from the Reserve Bank of India.
Important aspects an NRI should consider before Investing in India
An NRI should
- examine all the property documents especially the registered property title which one can obtain from the sub registrar’s office
- request for a clear property title and legally vetted property documents
- make sure that the property title belongs to the rightful owner and therefore, has the right to sell the property
- ensure that the property is free of any legal disputes
- ensure to check that the property doesn’t have any outstanding debts and obtain a no dues certificate
- procure a release letter from the bank if the estate has been used as a mortgage for a home loan
- ensure to verify that the property has been given the approvals and permits for construction from civic authorities
- attain the clearance under Urban Land (Ceiling and Regulation) Act, 1976 if required
- verify that the seller has the right to sell the property if he/she is buying it from a third part i.e. real estate dealer or promoter
- check if the quoted price of the asset is as per market value
- make sure no mortgage is outstanding on the property he/she wants to buy
With government promoting NRI Property Investments in India they have provided many benefits and flexibility in rules and regulations of foreign investments. This has given NRIs lot of advantages and opportunities to invest in property in India without much hassle.