Investment in Housing and Real Estate by NRIs / OCBs
Q. Do the non-resident Indians require permission from the Reserve Bank of India for the purchase of immovable property in India?
The Non-resident Indians can be broadly divided into two parts: non-residents who are Indian citizens and Non-residents of Indian origin holding foreign passport. Non-residents who are Indian citizens do not require any permission from the Reserve Bank of India for the purchase of immovable property in India provided the purchase considerations are settled in the manner which does not violate foreign exchange regulations in India. Non-residents of Indian origin holding foreign passports require filing of appropriate declaration with the Reserve Bank of India.
Q. What precautions should be taken before purchasing a flat in India?
It was found that on the basis of advertisements issued in the newspapers or on the basis of brochures issued by the Builders and Developers copies of which are sent abroad, non-residents Indians used to purchase immovable property or flats. Subsequently, it was found that the Builders did not have a marketable title to the property and/ or it was found that the plans were not approved by the Municipal authorities and / pr the Builders do not have the necessary fund for making the constructions and/ or there was no proper NOC from the Urban Land (Ceiling & Regulation) Act.
Some of the precautions that the purchaser has to take before buying the flat are:
- He should see that the promoter has made full and true disclosure of the nature of the title of the land on which the flats are to be constructed. He should see that a proper certificate is issued by an Attorney of Law or Advocate with a standing of not less than 3 years.
- He should see that the promoter has made full and true disclosure of all encumbrances on such land including the right title or interest, claim of any party on such land.
- He should see that promoter has given plan and specification of the building built or to be built on the land. It should be ascertained that such a plan or specification has been approved by the local authority as per the provisions of the law for the time being in force.
- He should see that the promoter has made disclosure to the nature of fittings, amenities (including the provision for one or more lifts) that are to be provided.
- He should call upon the promoter on reasonable notice if the promoter himself is the builder to disclose the description of the materials to be used in the construction of the building and, if the promoter is not himself the builder call upon him to disclose on such a notice the terms of agreement entered into by him with architect and contractor regarding the description or the material used in the construction of the building.
- He should call upon the promoter to specify the date on which the possession of the flat and is to be handed over.
- He should call upon him to disclose the list of the members of the purchasers of the flat and the price charged for every flat and/ or agreed to be charged.
- He should call upon the promoter to state in writing the addresses, nature of the organization of the persons to be constituted to which title is to be passed on. Such organization may be a Cooperative Society or private limited company etc.
- He should see that before taking possession the completion/ occupation certificate has been granted by the local authority as required under the law.
- He can call upon the promoter to make full and true disclosure of all outgoings such as municipal and other local taxes, taxes on income, water charges, electrical charges etc.
- The purchaser of the flat should call upon the promoter to make full and true
- disclosure of other information and documents in such a manner as may be prescribed under the law.
Q. What way the Non-resident Indian can finance the flat?
The purchase of flats can be financed from the fresh remittance through normal banking channels or from payment from original non-resident account or from Non-resident (External) Accounts. When the flat is under construction, it may be possible to get installment facilities from the builder. Loan may also be available in India for purchase of flats, for examples from Housing Development Finance Corporation.
The Non-resident Indians can now avail of the facilities offered by the Housing Development Finance Corporation (HDFC) to own a houses in any major city in India, under what is called as "Non-resident Certificate of Deposit" (NCRD) Scheme. HDFC offers to the non resident Indians some valuable benefits such as allocation of house / flats constructed by HDFC Developers Limited ( the wholly owned subsidiary of HDFC) or flats obtained by HDFC on a preferential basis from reputed builders, a housing loan on priority basis as per HDFC lending policy and a periodical news letter informing house purchase opportunities available in major cities in India.
Non-resident Indians who are citizens of India (Indian Passport holders) are eligible for housing finance for the acquisition of an immovable property or construction of a new house, or a flat for their occupation or for that of their family in India. But the HDFC also considers granting of loans to non-resident Indians even if they are abroad, provided a family member of his or her in India is made a co-borrower and a power of attorney is given to his representative in India.
HDFC loan for housing for non-resident Indians is made available for a maximum period of 10 years and the rate of interest chargeable is 14% per annum and in addition a nominal fee of 2% of the loan amount applied for is payable to HDFC for covering charges for application forms, loan processing procedure, technical inspection and legal documentation. HDFC also accepts pre-payment of the loan.
The non-resident Indians ought to know that HDFC means Housing Development Finance Corporation which is Financial Institution incorporated under the Indian Companies Act 1956. It has about over 13,000 shareholders including nationalized Banks, Insurance Corporation and other public companies and Individuals of whom some are even non-resident Indian. This Corporation mobilizes the resources through its various deposit schemes and negotiates long term lines of credit from financial institutions specifically for mortgaged loans throughout the country for resident.
Q. Since the Non-resident Indians are staying abroad can the property be purchased through the agent or thorough the Power of Attorney?
The non-resident Indians who are staying abroad may enter into an agreement through their relatives and / or by executing the Power of Attorney in their favour as it is not possible for them to be present for completing the formalities of purchase (negotiating with the builder or Developer, drafting and signing of agreements, taking possession, etc.). These formalities can be completed through some known person who can be given the Power of Attorney for this purpose. Power of Attorney should be executed on the stamp paper before the proper authorities in foreign countries. Power of Attorney cannot be drafted on the stamp paper bought in India.
Q. What precautions should be taken while drafting the agreements? Where there is any specific form prescribed while entering into agreement? What happens if the agreement is not entered into in the prescribed form?
Originally no specific form was prescribed in the Maharashtra Owner-ship Flat Act. It was found that some of the Builders and Developers drafted the agreements which aim at certain rights and privileges contrary to the provisions of law. The Act was amended under which the form is prescribed. Thus, if the agreement entered into between the builder and the purchaser is contrary to the prescribed form it may not be binding on the purchaser.
Q. What is the significance of possession?
Possession: It is said that possession is nine points of law. Vacant possession is a very important aspect of the flat should be checked in advance, and it is advisable to ensure that the acts of payment/ signing of agreement/ possession are done at the same time. The condition of the flat should be checked at the time of taking possession.
Transfer of Share: Where the flat is in a co-operative housing society, the shares should be transferred by the Society from the name of the seller to the name of the buyer. Certain societies have restrictions regarding the persons that can be admitted as members. These should be checked in advance, to avoid disqualification and related problems.
Registration: Registration is an important aspect in immovable properly transactions. In the case of a co-operative housing society, it should be checked that the society is either already registered with the Registrar or is in the process of being registered soon without any impediments. Disputes and delays regarding registration can lead to many problems later.
Rental: Non-resident Indians having immovable property (e.g. flats) in India can make arrangements with persons in India for realizing rentals.The rental income from properties must be transferred to the Ordinary Non-resident account of the owner with a bank in India within two months.
Repairs/ Upkeep etc. Non-resident Indians having immovable property in India (e.g. flats) can open an ordinary Non-resident account jointly with close relatives who are looking after the property for making payments for repairs, upkeep and maintenance of the property and also for depositing rentals.
If the person looking after the property is not a close relative, the Reserve Bank would consider a request for a opening a joint account in such a case on merits.
Q. What are the provisions regarding payment of stamp duty and registration charges?
Stamp duty, registration fee and other expenses for the prupose of transfer of such house property to the assesses are entitled for rebate u/s 88 However, following payments are not entitled for the rebate:
- Admission fee, cost of share and initial deposit paid for becoming a share holder of a company or member of a Co-operative Society.
- Cost of addition/ alteration/ renovation/ repair of house property the completion certificate of the house is issued by the competent authority or after it has been occupied by the assessee or other person on his behalf, or been let out.
- Expenditure allowable to be deducted u/s 24, out of income from house property.
In case the above payment is refunded to the assessee or the house property is transferred within five years from the end of financial year in which the property is obtained, the amount allowed earlier as a deduction will be charged to tax in the year of refund or transfer as the case may be.
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