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The Reserve Bank of India (RBI) has clarified that Non-Resident Indians (NRIs) and Persons of Indian Origin (PIO), purchasing immovable property in India should pay for the acquisition by funds received in India through normal banking channels by way of inward remittance from outside the country.
The NRIs and Resident Indians can also acquire immovable property in India other than agricultural property, plantation or a farmhouse. It has issued certain directive for sanctioning home loans to Non-Resident Indians. The guidelines provided are:
- The home loan amount should not exceed 85% of the cost of the dwelling unit, as the remaining amount that is 15% needs to be provided an own contribution towards the cost of unit financed.
- The cost of dwelling unit which is own contribution financed less the loan amount, can be met from direct remittances from abroad through normal banking channels, the Non-Resident (External) [NR(E)] Account and /or Non-Resident (Ordinary) [NR (O)] account in India.
- However, repayment of the loan, comprising of the principal and interest including all the charges are to be remitted to the HFC from abroad through normal banking channels, the Non-Resident (External) [NR(E)] Account and /or Non-Resident (Ordinary) [NR (O)] account in India.
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The repayment option for Non-Resident Indians (NRIs) is done in EMIs, and includes interest and principal amount calculated on monthly rests. The borrower can pay EMIs by issuing post-dated cheques from your Non Resident External (NRE)/Non-Resident Ordinary (NRO) or Non Resident (Special) Rupee Account (NRSR) in India; or any other account approved by the Reserve Bank of India (RBI).
In the case of part-disbursement of the loan, the monthly interest is payable only on the disbursed amount. EMI is payable every month, by the end of the month from the date of each disbursement up to the date of commencement of EMI. Pre-EMI is calculated at the same rate at which EMI is calculated.
Step Up Repayment Facility
By the step-up repayment option, a borrower can apply for a higher range loan based on the prospects of growth in income for years to come. In this repayment option the loanee has to pay less EMI in the initial years which increase as the income grows with the coming years.
Flexible Loan installments Plan
In this mode of repayment, the borrower has flexible loan installment facility where a borrower nearing retirement age can opt for paying higher EMI in the initial years and gradually move to paying lower installments after reaching retirement age.
Tranche Based EMI
Tranche Based EMI is a special facility offered to the customers so as to save their interest, in cases when customers purchasing an under construction property need to pay interest (on the loan amount drawn based on level of construction) till the property is ready. In such cases, customers can fix the installments they wish to pay till the property is ready. The minimum amount payable is the interest on the loan amount drawn. Anything over and above the interest paid by the customer goes towards principal repayment. The customer benefits by starting EMI and hence repays the loan faster.
Accelerated Repayment Scheme
Accelerated Repayment Scheme for NRIs offers a great opportunity to repay the loan faster by increasing the EMI. Whenever you get an increment, increase in your disposable income or have lump sum funds for loan prepayment, the loanee can benefit by
- Increase in EMI, which means faster loan repayment
- Saving of interest because of faster loan repayment You can invest lump sum funds rather than use it for loan prepayment.
A NRI loanee can opt for repayment ahead of schedule, by remittances in abroad through normal banking channels, your NRO / NRSR in India. However, by regulations in many states in India, the Agreement of Sale between the builder and purchaser is required to be registered by law. It is therefore advisable to record the agreement for registration within four months of the date of the Agreement at the office of the Sub Registrar appointed by the State Government, under the Indian Registration Act, 1908.
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The eligibility criteria of NRIs differ from Resident Indians based on a few parameters. The parameters include:
Age: The loan applicant has to be 21 years of age.
Qualification: The NRI loan seeker has to be a graduate.
Income: The loan applicant has to have a minimum monthly income of $ 2,000 (although, this criterion may differ across HFCs).The eligibility is also determined by the stability and continuity of your employment or business.
Payment options: The NRI also has to route his EMI (Equated Monthly Installments) cheques through his NRE/NRO account. He cannot make payments from another source say, his savings account in India.
Number of dependants: The eligibility of the applicant is also determined by the number of dependents, assets and liabilities.
An NRI applicant is eligible to get a home loan ranging from a minimum of Rs 5 lakhs to a maximum of Rs 1 crore, based on the repayment capacity and the cost of the property, which although is variable by the priorities of the home loan provider. Also Home Loan Tenure for NRIs is different from Resident Indians.An applicant will be eligible for a maximum of 85% of the cost of the property or the cost of construction as applicable and 75% of the cost of land in case of purchase of land, based on the repayment capacity of the borrower.However, a NRI can enhance his loan eligibility by applying for home loans with a co-applicant who has a separate source of income. Also, the rate of interest for home loans to NRIs is higher than those offered to Resident Indians. The difference is to the extent of 0.25%-0.50%. Some HFCs also have an internally earmarked 'negative criterion' for NRI home loans. As such, the NRIs who hail from locations that are marked as being 'negative' in the books of HFCs, find it difficult to get a home loan.
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MUMBAI: RBI on Wednesday clarified that NRIs and PIOs are not required to report to the central bank the details of transactions while purchasing immovable property in India, an announcement which is likely to encourage Indian diaspora to invest in the country.
"It is clarified that the extant regulations do not prescribe any reporting requirements for transactions where a person resident outside India who is a citizen of India or a PIO... acquire/s immovable property in India," the Reserve Bank said.
The clarification follows confusion over whether Non- Resident Indians (NRIs) and Persons of Indian Origin (PIOs), like foreigners, too have to file a declaration with the Reserve Bank within 90 days from the date of acquisition of properties.
Foreigners make the declaration in IPI form. "Form IPI has been, accordingly, amended for greater clarity," RBI said.
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The recent depreciation in the rupee provided a great opportunity for Non Resident Indians (NRIs) who were looking at remitting funds to India for investment. Having sent in their greenbacks, the next obvious thing to do was to invest the funds smartly. For a long time, real estate has been a favorite among the diaspora. Experts say that NRIs have always been interested in investing in India as they are familiar with the location, and realty has traditionally yielded good returns in the short to medium term. Moreover, many NRIs look at their property in India as a second home, a place they may want to come back to when they retire. Today, it's not only residential properties that offer investment opportunities. Commercial spaces like offices and retail also provide good returns.
But the real estate sector in India has not always been easy to deal with. Common complaints include the developers' demand for cash, delays in completion of projects, developers not delivering on promises and the sub standard quality of construction. And for NRIs who have spent a large part of their lives in developed systems, these pain points can be quite overwhelming.
Bring in the real estate bill, quick The proposal for a Real Estate Bill has been doing the rounds in the various State and Central Ministries for a while now. The bill is touted to be pro-consumer and some of the key points include: - a Real Estate Regulatory Authority in each state by the appropriate government (Centre for the UTs and state governments for states), with specified functions, powers, and responsibilities to facilitate the orderly and planned growth of the sector - mandatory registration of developers / builders, who intend to sell any immovable property, with the Real Estate Regulatory Authority as a system of accreditation - provision to compulsorily deposit a portion of funds received from the allottees in a separate bank account, to be used for that real estate project only - obligations of promoters to adhere to approved plans and project specifications, and to refund moneys in cases of default - the authority to act as the nodal agency to coordinate efforts regarding development of the real estate sector and render necessary advice to the appropriate government to ensure the growth and promotion of a transparent, efficient and competitive real estate sector; as also establish dispute resolution mechanisms for settling disputes between promoters and allottees/ buyers - Penal provisions to ensure compliance with orders of the authority and tribunal
The bill is being debated among various groups to iron out certain differences of opinions.
But as a consumer, one can only hope that the bill goes through quickly. While the budget itself will not deal with the bill, the Government would do well to give a direction and timeline.
Enable Professional real estate management companies Having purchased real estate in India, NRIs need several services for managing the property such as managing lease, paying property and other taxes, managing society dues and so on. Currently NRIs depend on parents or relatives living in India.
Professional real estate management companies can offer comprehensive services that would benefit NRIs.
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The real estate story in India is reaching amazing levels of recognition as more and more foreign funds make an entry in India. An expected US$ 10 billion worth foreign direct investments (FDI) is envisaged for the Indian real estate sector. More than the trend of real estate rates being triggered from within, it is the pressure from Non-Resident Indians (NRIs) and global market players that is prophesizing the future of the real estate boom in India. Real Estate has come on tops in terms of interest shown by overseas Indians.
Real Estate is attracting NRI investors not necessarily for speculative purposes, but to acquire strong assets that will give good returns. The most favorable route for NRI investments is to participate in a variety of infrastructure projects like roads and bridges in urban areas, construction of residential and commercial projects, development of townships at city and regional level and investment in participatory ventures.
The Real Estate rev up
Reinforcing the importance of such investments are the glorious opportunity-laden times offered by the growing Real Estate market in India, amply supported by the liberal investment policies of the Indian government at the Centre and the States.
The lucrative segments of the Indian realty market are open to global investors. The Indian government has opened the construction and development sector for foreign direct investment. Overseas Indian Facilitation Centre (OIFC) launched by the Ministry of Overseas Indian Affairs (MOIA) has been set up to help overseas Indians invest in India.
Residential prices have soared to more than Rs 5,000 per sq feet while commercial prices are over Rs 10,000 in Tier I cities. Property in Delhi is riveting enough to keep the average investor on his toes. Real Estate is up for grabs in the domestic and international circuit due to the city's fast paced and ultra modern lifestyle.
The technology boom has led to the skyrocketing of prices. Tier I cities like Bangalore, Delhi, Mumbai have registered a phenomenal growth in the past decade with their effect cascading into the Tier II and Tier III cities like Chandigarh, Gurgaon, Pune, Hyderabad, Mysore.
The various lucrative avenues created to invite maximum investments from abroad are being thoroughly appreciated.
NRI fund infusion in JVs
Malini Alles, a Silicon Valley billionaire has launched a Real Estate $150m fund with a greenshoe option of another $100m to invest in the Indian property market. Raj Vakharia, an entrepreneur from the U.S. has announced the launch of a private equity fund that will invest $250m worth of U.S. institutional capital into India's real estate market.
NRIs in Qatar are showing keen willingness to invest here. The anticipated launch of real estate investment trusts (REITs) when operational in India would ensure their participation in investment grade buildings. Currently, Indian REITs are making a foray into the Singapore market.
Business Park developer has applied to the Monetary Authority of Singapore to raise $357m to invest in integrated real estate projects in India. Pearl Global is venturing into real estate, tying up with Ansal Properties to develop 9.26 acres of commercial land in Gurgaon.
In a joint venture with two NRIs, Kolkata based Bengal Shrachi Housing Development has announced the launch of a housing complex with fully furnished ready-to-move in apartments in Rosedale Garden, designed to Non-Resident Indians (NRIs) taste and preferences.
The joint venture has shelled out Rs 3 bn for this mega project. All this clearly throw a light on NRI interest and confidence in the real estate market of India for safe and rewarding investments.
NRIs can fund investments through their own funds by using inward remittance from overseas, income earned overseas or personal savings outside India, or funds held in non-resident external (NRE) or non-resident ordinary (NRO), or foreign currency (non-resident) (FCNR) bank account for purchasing Real Estate in India.
Financial institutions and banks are forthcoming in financing their requirements considering them a safe profile due to their good repayment capacity.
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Malls in India are fast rising in prominence as the destination of premium products of famous international brands. The seven large cities - NCR of Delhi, Mumbai, Bangalore, Kolkata, Chennai, Hyderabad and Pune are the forerunners of the mall revolution in the country and has certainly caught the attention of the NRI diaspora, for their ingenuity and standards.
Out of a total 361 expected mall projects in the country, a formidable number are in the top seven cities while the rest spill over to smaller towns like Chandigarh, Jaipur, Lucknow and Indore. To NRIs and Indians abroad as well as a new class of consumers from the booming service sector which endorses NRI ideas of high disposable income and spending, the stupendous growth of the mall culture in the country is inspiring.
This trend has set off opportunities for real estate developers for creating malls in all the new townships that are being developed today. Going by the remarkable scale of NRI Investment in India, real estate developers are including elements that are relatable to the expatriate population, Indians overseas and NRIs moving to India.
Real estate developers such as DLF Universal, Suncity, Marg Constructions, Omaxe, the Aerens Group and Ansal have been proactive in adopting a 360 degree approach while designing their upcoming shopping spaces. Many of the new properties will be put on lease in a few months.
A bulk of the proposed mall developments in the city suburbs are being planned as mixed use developments that offer shopping, entertainment, commercial, hotel and amusement parks.
The 'market cities' have been conceived and planned as self-sustainable ecosystems which will seek to make the most of consumer synergies arising out of the strategic placement of entertainment spaces, multiplexes, star hotels, apartment clusters and shopping spaces.
The market cities are currently under development in Mumbai, Chennai, Bangalore, Pune, Secunderabad and Hyderabad but expected to be fully operational by 2010.
Cyberabad Market City, located at Hi-Tech City in Hyderabad, to be developed in a built-up area of 50 lakh square feet is set to start operations in December 2010.
The high point of the hypermarkets will be space devoted to home accessories and food within the shopping space. Multiplexes will cover 5-10 per cent of the total floor space.
Research reports of real estate companies indicate a convincing estimate of over 100 malls and shopping arcades covering approximately 25 million sq ft built up area in NCR by 2009.
Gurgaon is a good example of this where the malls have taken the city by storm. MG (Mehrauli Gurgaon) Road has approximately 10 mall developments - either planned or operational.
· Future Group-promoted Kshitij Venture Capital Fund (KVCF) is a Rs 350-crore real estate asset management fund for retail-focused realty development business in the tier II cities and mini metros. The Group has materialized its model in the form of its first two malls at Ahmedabad and Vadodara to be launched in January next year.
· Kochi which was a subdued retail market may witness a dramatic leap in the consumer footfall when a 4.22 lakh square feet mall becomes operational in that city in early 2009. This may also be replicated in Indore, Lucknow, Mysore, Jaipur and Kolkata with KVCF's realty success. KVCF has committed a Rs 350-crore corpus towards this end.
· Future Capital Holdings, the financial arm of the Future Group, has 18 properties under development out of which seven will be devoted to 'market cities', comprising hypermarkets, multiplexes and residential complexes.
· Horizon International Fund is investing heavily in market cities, developing areas of 5.38 lakh sq ft and above and has committed nearly $230 million (Rs 940 crore) so far.
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The serviced apartment segment in real estate India is sufficiently stimulated to vie for a place in the Indian hospitality sector. NRI real estate services are getting better with time. Spurred by the 'walk-to-work' concept and dramatic rise in business, corporate and tourist travel, realty majors have sprung into action to meet the growing demand of PIOs, global NRIs, expatriates and working professionals in India.
Business executives/ high-profile executives flowing into the country do not prefer staying in hotels but demand quality services that derive much from the NRI insight and ingenuity.
Typical industries involving high level of travel are BPO and IT which have fired the imagination of real estate developers in India in this direction. Pune, which is one of the popular destinations for NRI realty investment is a good example of a city with an ideal mix of corporate culture and real estate that suits international tastes.
The 'service apartment' concept:
Service apartments are fully furnished and self-catering units that combine the conveniences of a home with the facility of house-keeping, room-service, 24-hour receptionists, security and travel desk. Besides a self-help kitchen, laundry, telephone, high-speed internet connectivity, health clubs, some even offer value-add services for tourists and NRI groups such as sightseeing and guided shopping for spouses.
The Marriott Executive Apartments property at Powai has onsite convenience stores and restaurants and concierge, entertainment areas and social programmes and has takers including NRIs from abroad, from the UK, USA, Europe, Australia and South East Asia.
How service apartments clicked:
Often, such apartments are required by business travellers, tourists or corporates to meet their short-term accommodation needs. The concept is a rage also for the fact that it allows the user to give a personal touch to the place and to use the space in very much in the way they want.
Beckoning corporates and MNCs in India:
Service Apartments are given out for two to 6 months at a time and in general cost less than a four-or five-star hotel in the same region. In fact, they allow up to 25-40% savings off prevailing hotel prices in interim housing. The occupancy rates are moving up fast in the corporate market. For multinational firms, service apartments work out to be a cost effective option, enticing many companies to switch their accommodation budgets to serviced apartments.
Encouraging figures and developments:
The following facts and developments are indicative of its vast scope.
· Industry size is estimated at about 20% of the total hotel industry business.
· Ansal is building five types of service apartments in Greater Noida and Sushant Nagar City townships.
· Parsvnath building apartments are coming up at Bhiwadi in Rajasthan and Chandigarh.
· Besides Ansal API and Parsvnath Developers, a fusillade of new contenders are making their presence felt including Mennen Aviation & Hospitality Ltd, which plans to set up 15 service apartments by 2010. It will utilise a land bank of about 100 acres spread across Maharashtra, Goa and Karnataka.
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The factors that drive the sentiment amongst the Non-Resident Indians to invest in a property back home are many. The idea to have a base in the home country where one can return to is a prime reason that motivates the NRI buyer. Also, there are a growing number of NRI investors who look at India to get better appreciation on their investment.
According to Knight Frank's recent Global Price House Index, though markets worldwide have been struggling with growth, Asia continues to outperform all other world regions as prices here rose on average by 8.0% in the last 12 months.
The strength of the Indian real estate market makes it a safer bet of the lot.
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The set of tax and regulatory implications for properties received by NRIs as gift are vastly different from those received as inheritances. In this article, we see what those implications are.
Can an NRI receive property in India as a gift?
Yes, NRIs and PIOs can receive property as gifts from a person resident in India, from another NRI or from a PIO. However, the property can be only a commercial property or a residential property. Agricultural land, plantation property and farm house in India cannot be acquired by way of gift.
A foreign national of non-Indian origin cannot acquire property in India by way of gift.
What are the tax implications at the time of receiving the gift?
Gifts received from 'relatives' are not liable to tax. Relatives include:
> Spouse of the individual;
> Brother or sister of the individual;
> Brother or sister of the spouse of the individual;
> Brother or sister of either of the parents of the individual;
> Any lineal ascendant or descendant of the individual;
> Any lineal ascendant or descendant of the spouse of the individual; and
> Spouse of the person referred to in clauses (ii) to (vi)
Moreover, if the gift was received on the occasion of marriage or from a registered trust, it may be exempt from this tax.
Any gifts over Rs 50,000 received from people who are not relatives are taxed as income in the hands of the person receiving the gift. So you would need to add the fair market value of this property to your total income and pay tax thereof.
Also read : NRIs guide to renting out property in India
The property may also be subject to wealth tax. According to the Wealth Tax Act, tax is payable if the net value (market value minus any loans taken to finance the assets) of the assets of an individual exceeds Rs 30 lakh.
Now, there are certain exceptions to the definition of 'assets'.
i. Only one house
If you own only one residential house, you do not have to pay wealth tax. So after receiving the property as gift, if this is the only property that you own, you do not have to pay wealth tax on it.
The question arises as to whether this includes global properties. For instance, if an NRI owns a property in the US and gets one as a gift in India, will he be subject to wealth tax on the property in India?
Parizad Sirwalla, Executive Director - Tax at KPMG explains, "For an Indian citizen who qualifies as a 'Resident but Not Ordinary Resident (NOR)' or 'Non-Resident (NR)' of India (as per the Income Tax Act 1961) as well as for a foreign national, wealth tax is applicable only on the specified assets located in India. Specified assets located outside India are subject to wealth tax only in the case of Indian citizens who qualify as 'Ordinary Resident (OR)' of India as per the IT Act.
In the instant case, if the NRI qualifies as 'NOR' or 'NR' of India, the US house property will not be considered as a specified asset for wealth tax. Further, the house property in India may be considered as exempt under Section 5 of the Wealth Tax Act provided that's the only house he owns in India.
The US house property will be considered as specified asset for wealth tax, only if this NRI (assuming Indian citizen) qualifies as 'Ordinary Resident' of India for the relevant financial year. In such case, as one residential house property is exempt for wealth-tax, either of the property (US or India) can be considered as exempt (as per Section 5 of the WT Act) and the balance will be taxable. "
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Out of the 30 million NRIs in 130 countries, a substantial number, particularly in the Association of Gulf Cooperation Council (AGCC) countries, are remitting their hard-earned savings back home.
n the Far East also there are countries such as Malaysia and Singapore where migrants from India are looking at investing in affordable homes in India. Owning a home while working away from home is in their priority as is evident from the encouraging response to several projects that are on display during property shows held abroad.
A favorable exchange rate, propensity to save and easing of remittance norms enable them to look at investments in property. A majority of NRIs in the Gulf are looking at affordable homes in the price range of around Rs 25 lakhs.
Even those in the higher income category are looking at affordable homes either as an investment option or in order to gift it to their relatives back home. A number of single bedroom apartments are clubbed together by serviced apartment operators due to demand for such units from corporate for executives on an extended stay in cities.
A survey by Cushman & Wakefield has estimated the housing demand to be over 2.3 million units across major cities in the next five years - between 2011 and 2015. While the supply level is estimated at one million units, the shortfall will be 1.3 million units. The report analyzed demand for the top seven cities - Bangalore, NCR, Mumbai, Chennai, Hyderabad, Pune and Kolkata.
Of the total demand in the top seven cities, the mid-ranged housing segment is expected to drive the maximum demand (45 percent). A majority of the developers in the top seven cities are concentrating on this segment which would help reduce the supply-demand gap.
According to the report, the anticipated demand is likely to exert an upward pressure on property prices, especially in markets such as Bangalore, NCR and Mumbai where the demand-supply gap is high. For instance, in Bangalore, while the supply level is estimated at 1.11 lakh units, demand is anticipated at 2.87 lakh units.
On the other hand, the Tier II cities such as Pune, Hyderabad etc are likely to see appreciation of capital values at a slower pace compared to the Tier I cities during this time period. This is because of the relatively low demand-supply gap anticipated between 2011 and 2015 in Tier II cities.
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Buying a dream house in India is no longer an idle pipe-dream for Indians abroad. Be it in one's cozy little hometown, in the peaceful countryside or in a bustling business centre, investing in an apartment is now making business sense to a large number of Non-Resident Indians (NRIs).
Indians settled abroad retain an emotional attachment for the country. Even after decades of living abroad, they never get over the feeling that 'Home' is a place called India. An urge to return sooner or later is integral to the Non Resident Indian's mental makeup.
For an Indian who has gone abroad and realized his dreams of making it big, there is also an urge to gift a beautiful and spacious home to his parents and siblings. It gives an NRI great satisfaction to know that his or her family is now living well back home.
And so, it makes emotional sense for an NRI to buy a dream house in India - usually in his city of origin, or close to it. Unlike typical old-fashioned builders, the recent crops of construction companies are building homes of extremely high quality, comparable to the ones that NRIs are living in abroad. The high quality of recent constructions allays the NRI's greatest worry - that when he returns home, his family will have to compromise on the quality of life that they have become used to. The superior quality of tiles and fixtures in the apartments themselves are doubtless compatible with global benchmarking, but more importantly , the quality of amenities - lifts, compounds, swimming pools, club houses etc - sets the NRI flat-purchaser's mind at ease.
Buying a flat in India isn't only about emotions; it's also good business sense that drives thousands of NRIs to put their money in Indian Real estate. Having sustained the ups and downs of several financial cycles - both Indian and global - Indian properties are a proven investment option .
Having decided to invest in an Indian property, the busy NRI sees a number of question-marks : How to work through the modalities? Who will guide him, organize site visits, tie up the finance? How will he transfer huge sums of money? How will he ensure that the legal paperwork is properly done to safeguard his interest and his family's peace of mind?
Earlier, cross-border transactions posed challenges, given the need to send money across countries, buy or sell currencies etc. However, all that is a thing of the past. Ebanking and ease of online money transfer is now motivating many Indians to truly exercise their choices.
For this reason, business-savvy NRIs who grow their net-worth trading in other markets book their profits, and then lock in the value by investing in spacious apartments for themselves and their parents, and also their growing children. With the advent of online portals offering such services, many NRIs can now conveniently access worthwhile properties, virtually 'feel' the houses and its amenities, and invest in their dream homes.
When the NRI customer reaches out across national borders and finds online service providers willing to reach out and hold his hands - that's when all challenges are overcome , and the promise of India is truly fulfilled.
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The Non Resident Indian (NRI) might as well remember 2011 as the year of the 'lazy investor'. For NRIs have gained 18% since August 2011, simply by remitting money to India; no effort at all. But as we approach 2012, NRIs must take stock of how best to use their remittances. The traditional favorite has always been real estate. But in this volatile market, how great an investment is it? Is this a good time to buy property in India? What kind of property is a good bet? Let's try to find answers.
Is it a good time to invest in commercial property in India?
"Yes," says Sanjay Dutt, CEO - Business, Jones Lang LaSalle India. "There are a number of reasons that come to mind. Firstly, India's growth story remains intact with just some relatively minor turbulence in the short term. Secondly, for NRIs, right now there is the straight advantage of exchange rate. The rate will eventually stabilize with Government intervention. Thirdly, property valuations, especially in the commercial space, have come down and are currently undervalued by 15-30%. Fourth, some of the developers are significantly leveraged (paying 13% interest rate for construction and 15% to 21% for land from NBFCs and private lenders). As a result they now want to take some cash out and invest in mid or low market fast moving residential. In short, there is pressure on developers.
Lastly, vacancy rates in the office space are expected to be high. For instance, out of the 60 million square feet of supply that is expected to come in by the end of 2011, 25% is expected to be vacant. This will force developers to either lease cheap and/or sell cheap," he explains. "If you want sustainable yields and capital appreciation, this is the best time," Dutt concludes.
Having said that, Berinder Sahni Associate Director, Investment Services, India - Colliers International, advices that investors must stay invested in a property for at least the next 5 years to see a good return.
Which are the top cities for commercial real estate investment?
Sahni and Dutt, both list the following cities: Mumbai and Pune in the West, Delhi and NCR in the North and Bangalore, Chennai, and Hyderabad in the South.
What kind of commercial property should NRIs opt for? What are the potential yields?
There are 3 broad options in commercial property: front office space (like banks, MNCs), IT office space and high street retail space.
The kind of property that you choose would depend on your budget and risk profile. "In the case of office space, a good quality unit in Delhi and Mumbai would come at a budget of at least Rs 15-20 crore. In other cities like NCR, Pune, Bangalore, Chennai and to an extent in Hyderabad, you would have to put in at least Rs 10-15 crore. These properties would generate a rental yield of 10.5-11%," says Dutt.
Sahni adds, "The minimum size for a good commercial office space will be 2500 square feet. IT office space may come at a lower purchase price but the risk in IT spaces is higher right now. We believe that commercial office space can give you rental yield of 8-9% pre tax while IT spaces can generate slightly higher yields of 10-11% because of the inherent risk. Also, as you go closer to prime locations like Central Business District (CBD) areas, yields for all kinds of properties will drop to around 7%. Retail properties are slightly easier to handle because it's easier to find a tenant. Therefore, yields also tend to be lower at 6-7%. Moreover you can buy smaller spaces, as small as 500-600 square feet, in retail properties."
You can also choose the property based on your risk profile. For instance, you can buy a space in an under construction or new unit where you will be able to buy for cheap but you will also have to put in efforts to find a tenant and lease out the property. "We usually recommend our NRI clients to invest in 'pre-leased' properties, that is, those properties that already have a lease agreement in operation. You might have to pay a little more as compared to under construction or fresh properties but you are assured of lease rentals. Pre leased properties usually have a 3-5 year lock-in with a lease term of 9 years. Even smaller office spaces will have a 3 year lease term," explains Sahni.
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BANGALORE: Non-Resident Indians (NRIs) have started taking keen interest in the real estate sector back home following significant appreciation of the dollar vis-a-vis the rupee, a top official of housing finance company said today.
"NRIs have started taking keen interest due to the appreciation of the dollar. They have started converting the dollar into rupee", Director and CEO of LIC Housing Finance Ltd, Vijay Kumar Sharma, told reporters here.
NRI interest is "perceptible and visible", he said, adding LICHFL's Dubai and Kuwait offices (catering to NRIs investing back home) have "lot of enquiries and log-in" and "compared to last year, the growth (there) is 50-60 per cent".
Sharma also said the Bangalore metro rail project would transform the real estate sector in this city in three years, similar to what happened in Delhi.
"Metro completely transformed the entire (real estate) profile. This is going to happen in Bangalore also in the next three years. I am sure about it"", he added.
Referring to a just-released study, Sharma said the Bangalore real estate market is looking up again after two years, and demand has gone up.
LICHFL today kicked off a three-day property expo here, with participation of more than 50 builders who are showcasing more than 250 projects.
The maximum processing fee for the visitors at the exhibition - NIMMA MANE 2012 - is Rs 5,000 plus service tax, a "high rebate" as Sharma put it, adding, "normally, processing fee is one per cent of the total amount".
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BANGALORE: Many NRIs are teaming up with like-minded buyers on real estate group buying sites to shop for flats in India. The cheaper rupee and deep discounts offered by developers through these portals has triggered a substantial jump in property-related enquiries from NRIs in the US, UK and the Middle East in the last three months.
London-based Nayan Bhavishi has poured more money into the real estate market in the country than in any other geography or asset category . An avid real estate investor , Bhavishi snapped up two ready-to-move-in flats in Vaastu project in Thane for Rs 1.20 crore through real estate portal Groffr.com. "I was scouting for properties in India and stumbled upon this site offering good discounts. I got 25% discount on my property purchases and the exchange rate at Rs 84 to a pound was a big draw," he said. Bhavishi said he bought the property at Rs 4,200 per sq ft when the rates in neighboring properties were between Rs 5,800 and 6,000.
In an increasingly tough environment, developers are warming up to group housing portals. Sandesh Wadhwa, cofounder of group-buying portal groupbookings.in, said many people sitting on the fence have swung into action in the last three months. "There is more demand coming from NRIs for mid-sized housing projects in Gurgaon, Bangalore, Hyderabad and Chennai," he said.
Sandeep Reddy, co-founder of Groffr.com, said the website has seen a healthy sales conversion rate in the last two months primarily driven by NRIs. "The mood among NRI investors is buoyant as they now need to spend fewer dollars or pounds for the same property. The sub-Rs 60 lakh properties are most in demand ," he added.
Vaibhav Sharma, assistant professor of finance at Winthrop University in South Carolina, has booked two flats in Gurgaon through groupbookings .in. "If I were to invest in the US, the property value would fetch me a negative return. It's a good time to enter the Indian real estate market, where I think I can expect at least 6% annualized returns in the residential space," he said.
Sharma's purchase decision was also driven by the favorable exchange rate. He bought the flats last September when the rupee was close to 50 to a dollar. "I also received a 10% discount by signing up on the portal. I didn't have to haggle or make several house hunting trips," Sharma added.
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An estimated 30 million NRIs, living in 130 countries, are sending remittances back home regularly. According to the World Bank, India continues to retain the top slot in remittances by expatriates from abroad. India will beat China in receiving the highest amount of remittances for five consecutive years.
For 2011, NRI remittances are likely to touch 4 58 billion against China's 4 57 billion. In 2010, India received 4 54 billion in foreign exchange remittances, three percent of India's GDP, beating China's 4 53 billion.
The rupee depreciation and West Asian currencies linked to dollar which is appreciating against the rupee are major driving forces that resulted in a surge in remittances to India. The remittances are mainly used for family needs and investments in stocks, property and term deposits. Real estate here is preferred because of a desire to create a higher lifestyle for the family and the price appreciation in the long term.
Though there was an interim sluggishness in NRI investments, industry experts feel the trend is going to pick up in the coming months due to the uncertainty prevailing in the global economy and the attractive investment opportunities offered here. There are opportunities opening up for developers in new markets such as Mauritius. This is ample proof of the surge in NRI investments in real estate.
Property shows are held regularly now in various countries such as US, UK, and West Asia due to the concentration of a large number of expatriates in particular areas. The organisers focus on the many options available in various localities here.
Since liberalization in the 1990s, investment norms have been simplified to enable NRIs and persons of Indian origin (PIO) to invest in real estate here. Realtors here have also set shop in some countries to interact directly with overseas Indians and extend effective after sales services. Moreover, housing finance companies and banks with their representative offices in various countries offer home loans to NRI investors.
An Indian citizen who resides outside India is permitted to acquire property in India other than agricultural, plantation property and farmhouse. NRIs get almost all the privileges that residents have while investing in real estate.
They can acquire, inherit, transfer and gift residential or commercial property. The purchase can be made through funds remitted to India through normal banking channels or funds held in certain types of accounts maintained in India. They can get home loans, mortgage loans and loans against future rental income.
While sale proceeds up to two residential properties can be repatriated after a lock-in period of three years, there is no restrictions on commercial property. Up to one million dollars per year from such a sale can be remitted outside India from a non-resident ordinary account. Rental income can be repatriated after payment of tax, wherever applicable.
A number of property management companies including MNCs have set up shop in major cities to extend property management services. This is a boon to NRIs and PIOs investing in India while living in other countries.
NRIs, while returning, can retain their foreign current assets acquired, held or owned while abroad, or inherited from a person who was a resident outside India even after return to India for permanent settlement. However, income earned from an overseas asset needs to be repatriated to India and credited to a resident foreign currency (RFC) account.
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The documentation required to be submitted by the NRIs are different from the Resident Indians as they are required to submit additional documents, like copy of the passport and a copy of the works contract, etc. And of course NRIs have to follow certain eligibility criteria in order to het Home Loans in India.
Another vital document required while processing an NRI home loan is the power of attorney (POA). The POA is important because, since the borrower is not based in India; the HFC would need a 'representative' 'in lieu of' the NRI to deal with and if needed. Although not obligatory, the POA is usually drawn on the NRI's parents/wife/children.
The documents needed for obtaining NRI home loans are:
- Passport and Visa
- A copy of the appointment letter and contract from the company employing the applicant.
- The labor card/identity card (translated in English and countersigned by the consulate) if the person is employed in the Middle East Salary certificate (in English) specifying name, date of joining, designation and salary details.
- Bank Statements for the last six months
List of Classified documents for Salaried and Self Employed NRI Applicants
|Salaried NRI Applicants||Self-Employed NRI Applicants|
|Copy of valid passport showing VISA stamps||Passport copy with valid visa stamp|
|Copy of valid visa / work permit / equivalent document supporting the NRI status of the proposed account holder||Brief profile of the applicant and business/ |
Trade license or equivalent document
|Overseas Bank A/C for the last 3 months showing salary credits||6 months overseas bank account statement and NRE/ NRO account|
|Latest contract copy evidencing Salary / Salary Certificate / Wage Slips||Computation of income, P&L account and B/Sheet for last 3 years certified by the C.A. / CPA or any other relevant authority as the case may be (or equivalent company accounts)|
- Original title deeds tracing the title of the property for a minimum period of the last 13 years.
- Encumbrance Certificate for the last 13 years.
- Agreement of sale /construction, if any
- Receipts for payments made for purchase of the dwelling unit.
- Approved plan / license.
- ULC clearance /conversion order etc.
- Receipts for having invested the margin money through normal banking channels from the Non-Resident (External) account in India and / or the Non-Resident (Ordinary) account in India.
- Latest tax paid receipt.
- Allotment letter from the co-operative society / association of apartment owners.
- Agreement for sale / sale deed /detailed cost estimate from Architect / Engineer for property to be purchased / constructed /extended / improved.
- Copy of approved drawings of proposed construction/purchase/extension.
Additional documents to be submitted by Person of Indian Origin
Photocopy of PIO card.
If the PIO card is not available, photocopies of any of the following documents:
- The current passport, with birthplace as 'INDIA'
- The Indian passport, if held by the individual earlier.
- Parents/grandparents Indian passport/birth certificate/marriage certificate substantiating the individuals claim as a person of Indian origin.