Why NRIs should consider investment in immovable property in India

Atul Mittal / Ruchi Maini

Ever since India embarked on the path of economic liberalisation, non-resident Indians (NRIs) have endeavored to optimize returns on their investment avenues. To support this, the government has introduced several new schemes, offered relaxations and incentives for attracting investments especially from NRIs. Real estate has been a key area for attracting such an investment and is considered one of the most prominent and high returns sectors.

Acquisition of real estate by NRIs is governed by the Foreign Exchange Management Act, 1999 (FEMA) and has seen control from government and the RBI with the apprehension that uncontrolled investments may fuel speculation in property prices. Typically, NRIs may purchase immovable property (other than agricultural land/ plantation property/ farm house) in India or obtain by inheritance or by way of gift (from Indian resident, Indian citizen residing outside India / PIO) and other permitted modes as per FEMA regulations. NRIs are also permitted to transfer immovable property to a person resident in India, person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.
 
 
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The payment for such an acquisition of real estate can be paid out of the funds received in India through normal banking channels by way of inward remittance from any place outside India or from the proceeds of housing loans which can be availed in rupees from an authorised dealer bank or housing finance institution in India or by use of funds held in any non-resident account such as NRE, FCNR(B), NRO Account maintained in accordance with the provisions of FEMA and other applicable regulations.

NRIs may also repatriate sale proceeds of immovable property (other than agricultural land, farm house or plantation property) only after ensuring compliance with FEMA Regulations and further subject to adherence of taxation regulations. The funds to be repatriated should not exceed the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels, or the amount paid out of funds held in FCNR (B) account, or NRE account for acquisition of the property in India.

However, RBI has permitted NRIs to remit an amount up to USD 1 Million in a financial year, out of balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all bonafide purposes, to the satisfaction of the AD Bank. It should also be noted that in the case of a residential property, repatriation of the sale proceeds is restricted to a maximum of two such properties.

Further, refund of application / earnest money / purchase consideration made by the house building agencies / seller on account of non-allotment of flat / plot / cancellation of bookings / deals for purchase of residential / commercial property, together with interest, if any (net of income tax payable thereon) may be allowed by the AD Bank by way of credit to NRE/FCNR (B) account, provided the original payment was made out of NRE / FCNR (B) account of the account holder or remittance from outside India through normal banking channels and the AD Bank is satisfied about the bonafides of the transaction.

The Real Estate (Regulation and Development) Act, 2016 (RERA) effective from May 1, 2017 is recognized as one of the most consumer-friendly law and having paved the way for sector regulator has enhanced the credibility of real estate sector. RERA has emerged as a strong force in welcoming participation and confidence of NRIs who have arguably been the prominent investors in the sector. For NRIs, the Indian real estate market definitely holds the highest possible investment potential where their aim is to maintain a healthy long-term investment horizon of between 7-10 years and the transparent and well-regulated sector would strengthen the investment regime.

RERA governs and covers all existing ongoing and future projects, after which the developers are mandated and directed to disseminate the entire project related information on the web portal for ease of access for investors. Public dissemination of project status would boost transparency and compliance which is critical and essential for investors who are miles away from the project site and may have invested their life savings. NRIs who generally do not have access to the project site can be highly relieved and assured of their investment with implementation of RERA.

The government and the RBI have stressed upon to boost the participation of NRIs investor in property in India and further simplify acquisition of immovable property by NRIs and the onus to ensure diligent compliance of FEMA regulations, vests with the investors. It is imperative that every investment in real estate is well thought-out, planned, evaluated and implemented. NRIs have always been opportunistic in terms of their investment and with the revised guidelines and relaxations compared to earlier decades and implementation of RERA investing in immovable properties in India is not a herculean task for NRIs anymore.

(Atul Mittal is Director and Ruchi Maini is Manager with Deloitte Haskins and Sells LLP)