Rules/Procedure related to NRI property purchase and sale
credits: vishal creative solutions
As the real estate market has started witnessing a slump due to the COVID pandemic, the developers have started to focus again on NRI/PIO buyers with new and extended offers, deals and discounts. With new NRI investors seeking to avail of this opportunity, we bring to you certain rules and procedures which an NRI/PIO should keep in mind while making a purchase of property in India.
NRIs and PIOs, who are eligible for these loans, are people of Indian birth, descent or origin who are settled out of India. By definition, NRIs are Indian citizens who reside in India for less than 182 days during the course of the preceding financial year, or citizens who has gone/stays outside India for the purpose of employment, for carrying on business or vocation, or for any other purpose indicating his intention to stay outside India for an uncertain period. On the contrary, a PIO is a citizen of a foreign country (except Bangladesh or Pakistan) who has held an Indian passport at any time, or had Indian parents or grandparents, or has a spouse who is a citizen of India.
Where can an NRI/PIO invest in property in India? And how much? NRIs/PIOs are allowed to many any number of investments in residential, commercial and industrial real estate. There is no restriction by the RBI on the volume or number of properties which can be purchased. Traditionally, NRIs/PIOs invest in residential properties such as studios and apartments (when buying in metros and employment regions), and plots and individual houses (when investing in small towns/cities).
To generate stable income for their future, the NRIs/PIOs also invest in commercial properties in emerging and developing areas, so as to garner the appreciation in price and profits at a later stage in their life. Traditionally, NRIs/PIOs, are seen to be investing in safer commercial properties, such as buying shops and space in malls and gallerias. They also sometimes invest in REIT and office spaces in India.
Where an NRI can’t invest via automatic route? Under Foreign Exchange Management Act, 1999 (FEMA) and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, an NRI is not allowed to buy any agricultural land/plantation property/farmhouse in India through the automatic route.
Certain exceptions to this rule include an NRI seeking special permissions from the RBI to purchase agricultural land, plantation property or/and farmhouse, which may be allowed by the RBI after the consideration of various factors. Additionally, he/she can simply inherit agricultural land from a resident Indian.
Are NRI/PIO buyers protected by RERA NRI/PIO buyers are protected by RERA (Real Estate Regulatory Authority) act, which was implemented in 2016 by the Indian Government to facilitate transparency and accountability in home buying. The law, which was brought in to maintain and protect the interest of buyers (including NRI/PIO) and to resolve conflicts between builders and buyers has played an important role in encouraging NRIs to invest in India.
With RERA in force, every builder must inform the homebuyer with the progress of construction, abide by the timelines and follow all the rules laid by the RERA act to maintain accountability. The law has been crucial in offering clarity in regulations as well as a stable pricing environment, something which the NRI community has always faced problems in gathering.
The RERA act has been successfully implemented in more than 22 Indian states and 6 union territories, including Gujarat, Madhya Pradesh, Chandigarh, Uttar Pradesh, Delhi, Maharashtra, Andhra Pradesh, Odisha, Bihar, Rajasthan, Jharkhand, Uttarakhand, Tamil Nadu, Karnataka, Punjab, Chhattisgarh, Haryana, Assam, Telangana, Himachal Pradesh, Goa, Tripura, Puducherry, Kerala, Manipur, Mizoram, Daman and Diu, Lakshadweep, Andaman and Nicobar Islands, Dadra and Nagar Haveli. All these states and union territories provide protection to its buyers (including NRI/PIO) buyers for all the RERA registered properties. Thus an NRI/PIO investor seeking for property in India must look out for the RERA registration of the property, to become eligible for receiving penalties from the builders and developers in case of delay or default of the project timelines.
Can NRI get a Home loan in India? An NRI/PIO has various options for making a purchase in India. They can either use their personal capital from their Non-Residential External (NRE)/Non- Resident Ordinary (NRO) accounts or finance it through a bank in India.
As per the FEMA act, an NRI can remit his/her funds for this purchase using normal banking channels or use his/her balance in a Non-Resident Rupee (NRE) account, Non-Resident Ordinary Rupee (NRO) account or Foreign Currency Non-Resident (FCNR) account for making a purchase.
He/She can also apply for a bank loan in India from various notified banks for purchasing a property in India. While the period of repayment of home loans for NRIs is 15-20 years for most cases, some of the financial institutions also offer loans for an extended period of 30 years. However, in the case of an NRI home loan, the EMI (Equated Monthly Instalment) cheques need to be issued from the NRI’s NRE/ NRO account, and not from another source, including his/her savings account in India.
To know more about home loans in India, click here.
What are the rules around NRI/PIO selling a property in India While there are no restrictions around selling a property to a resident Indian, an NRI or PIO may need the approval of the RBI in case they want to sell the property to a Non-Resident Indian or a Person of Indian Origin (POI). No NRI/PIO is allowed to sell a property to a foreigner.
Below is the list of documents which are required for selling a property in India:
Title of the property (in the seller’s name)
No objection certificate, reflecting litigations, debt and lien-free status of the property
Occupation certificate (OC), issued by the municipal corporation
Plan approval or sanction certificate
Cooperative share certificate (valid for properties in a society building)
Permanent Account Number (PAN) number of the seller
Non-Resident Ordinary (NRO) bank account, which is a savings or current account that NRIs maintain to manage the income earned in India.
If the NRI/PIO seller of the property is unable to visit India, he/she needs to designate a representative through a power of attorney. This representative could be a family member, friends, aide, legal expert or professional service.
An NRI is also subject to capital gains tax upon selling a property, including inherited property.
Under FEMA, is there any restriction on repatriation of sale proceeds? While Foreign Exchange Management Act (FEMA), which is the law enacted (in 1999) by the Indian Government for controlling the flow of foreign currency across Indian borders, doesn’t restrict NRI buyers from making a purchase in India, the repatriation of sale proceeds of these residential properties has been restricted by the RBI.
An NRI should be aware that if he/she is buying a property using funds in his/her NRE account, the repatriation of sale proceeds is restricted to not more than two properties in the case of residential properties. Also, the amount of the repatriation which flows out of India should not exceed the amount which was received (in foreign exchange) through the normal banking channels or from the funds held in FCNR or NRE Account for the purchase of the immovable property.
Additionally, if you have inherited the property or retired from employment in India, repatriation of more than USD 1 million per financial year is not allowed from India.