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Who is an NRI?

Under the Foreign Exchange Regulation Act of 1973, Non-Resident Indians are:

Indian citizens who stay abroad for employment or carrying on business or vocation outside India or for any other purpose in circumstances indicating an indefinite period of stay abroad; OR

Government servants who are posted abroad on duty with the Indian missions and similar other agencies set up abroad by the Government of India where the officials draw their salaries out of Government resources; OR
Government servants deputed abroad on assignments with foreign Governments or regional/international agencies like the World Bank, International Monetary Fund (IMF), World Health Organization (WHO), Economic and Social Commission for Asia and the Pacific (ESCAP) OR

Officials of the State Government and Public Sector Undertakings deputed abroad on temporary assignments or posted to their branches or offices abroad.

Who is a foreign citizen of Indian Origin?

A foreign citizen is deemed to be of Indian Origin if

  • he held an Indian Passport at any time or
  • he or his father or paternal grand father was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955. However this does not apply to citizens of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri Lanka or Nepal.

What are the important things which consumer should keep in mind while purchasing a home?

  • Locality i.e. transport, schools, hospitals, market, business district, entertainment centers, hotels, restaurants, pollution levels
  • Quoted area of the flat i.e. Carpet, Built Up Area and super Built Up Area
  • Car parking space
  • Quality of construction
  • Reputation of the developer
  • Sufficient water and electric supply, other utilities
  • Cost components: price, stamp duty, registration charges, transfer fees, monthly outgoings and society charges, costs of utilities
  • Potential for resale or renting out of the property
  • Any other distinguishing features or advantages of the property

Important checklist before buying a residential property?

  • Market Trends about prevalent rates of property in the vicinity and last known transactions
  • Ask for photocopies of the all deeds of title related to the property to be purchased. Examine the deeds to establish the ownership of the property by seller, preferably through an advocate. Ascertain the survey number, village and registration district of the property, as these details are required for registration of the sale. Previous encumbrances and loans, if any on the property must be cleared before completion of purchase of the property. The title of the Vendor to the property must be clear and marketable.
  • Check for approved layout plan and approved building plan with number of floors
  • Clearance from Municipality, Electricity, Water, Pollution, and all relevant authorities
  • Check the building bye-laws in that area to verify any issue with setback, side setback, height, etc
  • Confirm transfer fees, stamp duty and registration charges to be paid on purchase of the property as well as outgoings to be paid for the property i.e. property tax, water and electricity charges, society charges, maintenance charges

Do NRI's require consent of Reserve Bank to buy immovable property in India?

No. NRI's do not require any permission to buy any immovable property in India other than agricultural / plantation property or a farmhouse.

In what way the purchase consideration for the immovable property should be paid under the general permission?

The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from any non resident accounts maintained with banks in India.

Is there any limit on the number of housing properties that may be purchased by an NRI?

There are no limits on the number of residential properties that may be bought by an NRI. However, repatriation (the process of converting a foreign currency into the currency of one’s own country) is allowed only in respect of two such properties.

What are the guiding principle for getting hold of agricultural land / plantation property / farmhouse by NRI’s and foreign citizens of Indian origin?

All requests for purchase of agricultural land / plantation property / farm house by any person resident outside India may be made to The Chief General Manager, Reserve Bank of India, Central Office, Exchange Control Department, Foreign Investment Division (III), Mumbai 400 001.

Can a home/land be sold without the permission of Reserve Bank?

Yes. Reserve Bank has granted general permission for sale of property. However, where another foreign citizen of Indian origin purchases the property, funds towards the purchase consideration should either be remitted to India or paid out of balances in non-resident accounts maintained with banks in India.

Can sale proceeds of such property if and when sold be remitted out of India?

In the event of sale of immovable property other than agricultural land/farm house/plantation property in India by a NRI or PIO, the authorized dealer may allow repatriation of the sale proceeds outside India, provided all the following conditions are satisfied: -

The immovable property was acquired by the seller in accordance with the provisions of the Exchange Control Rules/Regulations/Law in force at the time of acquisition, or the provisions of the Regulations framed under the Foreign Exchange Management Act, 1999; 

NRIs/PIOs can effect remittance of sale proceeds of immovable property in India irrespective of the period for which the property was held. The sale proceeds allowed to be repatriated should, however, not exceed the foreign exchange brought in to acquire the said property. 

In case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties, if the property was purchased from funds held in NRE Account.

The amount sought to be repatriated abroad should not exceed the amount paid for acquisition of the immovable property in the foreign exchange received through normal banking channels or out of funds held in FCNR or NRE Account. In case of investment out of NRE Account the amount to be calculated as foreign currency is equivalent value as on the date of payment for acquisition of the said property.

Does RBI have any guidelines for loans to NRI's/PIO's?

There are guidelines issued by the by the Reserve Bank of India for grant of Housing Loans to NRIs. The guidelines are:

  • The loan amount shall not exceed 85% of the cost of the housing unit.
  • Own contribution, which is the cost of housing unit financed less the loan amount, can be met from direct remittances from abroad only through normal banking channels, your Non-Resident (External) [NR (E)] Account and /or Non-Resident (Ordinary) [NR (O)] account and /or Non-Resident Special Rupee account [NRSR] in India
  • Reimbursement of the loan, comprising of the principal and interest including all the charges are to be remitted from abroad only through normal banking channels, your Non-Resident (External) [NR (E)] Account and /or Non-Resident (Ordinary) [NR (O)] account and /or Non-Resident Special Rupee account [NRSR] in India

Can authorized dealer grant loans to NRIs for purchase of a flat/house for residential intention?

Authorized dealers have been granted permission to grant loans to NRI's for acquisition of house/flat for self-occupation on their return to India subject to certain conditions Repayment of the loan should be made within a period not exceeding 15 years out of inward remittance through banking channels or out of funds held in the investors' NRE/FCNR/NRO accounts.

Can authorized dealer grant housing loan to NRI's where he is a principal borrower with his resident close relative as a co-applicant / guarantor or where the land is owned jointly by such NRI borrower with his resident close relative?

Yes. Such housing loans availed in rupees can also be repaid by the close relatives in India of the borrower.

What are the documents I have to submit along with the application?

The following documents are normally to be submitted along with the application:

  • Photocopy of the labor contract and English translation duly countersigned by your employer
  • Latest salary certificate (in English) specifying the following: Name (as it appears in the passport) , Date of joining , Passport Number, Designation , Perquisites and salary.
  • Photocopy of labor card/identity card
  • Photocopy of valid resident visa stamped on the passport
  • Photocopy of monthly statement of local bank account for the last 4 months
  • Property related documents

Can an NRI take loan against the security of immovable property in India? Are there any restrictions on the use of loan amount?

An NRI can borrow against the security of immovable property from Authorized Dealer subject to following conditions:

The loan should be used for meeting the personal requirements or for borrower's own business purposes; and

  • Loan should not be used for forbidden activities, namely;business of chit fund, or
  • Agriculture or plantation activities or in real estate business, or construction of farm houses,

Or

  • Trading in Transferable Development Rights (TDRs), iii) the loan amount cannot be remitted outside India,
  • Repayment of loan shall be made from out of remittances from overseas or by debit to NRE/FCNR/NRO account or out of the sale profits of shares or securities or immovable property against which such loan was granted.

What kinds of incentive can NRIs, PIOs and foreigners look forward to in the Indian real estate industry that favours investment?

The relaxation of FDI in the construction development sector announced in March 2006 allows NRIs, PIOs and all foreigners equal opportunity with their Indian counterparts in the Indian real estate sector. The new guidelines states that before selling, the site has to be developed, constructed upon or fulfill the criteria of minimum one year development.

  • NRIs, PIOs and foreigners can now invest in land, buy it, construct upon it or develop it, sell constructed buildings/developed plots
  • FDI through automatic route can also flow in not just for the housing sector, but also for townships, housing, commercial area, and infrastructure development
  • Restrictions on minimum area of land, minimum number of units has been removed
  • Minimum constructed area required is 50, designated area is 25 acres

Is there any specific target to actually complete your construction development work?

The norms are quite liberal. It allows you five years to finish at least 50% of your project from the date of getting all the clearances. In normal circumstances the project can be completed within three years. It helps protect the customer and keeps fly-by-night people at bay.

How does the automatic route work?

The automatic route has simplified much of the cumbersome investment process. Approval from the Reserve Bank is not required anymore. No need to go to the Foreign Investment Promotion Board either. The easing of paper work and relaxation of formalities has given a boost to overseas investor confidence for investing in India.

What aspects should overseas investors look at in the Indian real estate market to facilitate the suitability of their projects?

Any NRI before investing in the Indian real estate should also focus on the particular segment that he plans to invest in - like residential, retail or office space. Consulting legal firms and real estate firms providing professional NRI services can be very useful.

What are the steps an NRI should follow for getting all the clearances in a hassle-free manner? Whom should one meet in the process?

A lot depends on the segment you want to invest in. It helps to gauge the future state and to know what utilities are available.

  • An office market investment, for instance, requires you to:
  • Get in touch with consultants for advice on the city of choice
  • Outline your objectives, the size of your investments
  • Have an approximate of the returns you are expecting.
  • The yield that has evolved from distinct parameters ranges between of 8 - 8.5% to 12% for office space and 4% - 6% in residential
  • Whether the land is for investment or for development is also a deciding factor, as is the local demand-supply situation
  • While investing in India, the availability and quality of infrastructure or utilities like power, connectivity, security and long-term future plans need to be scrutinized.

Is a single window clearance possible?

Single window in a real estate project in India sometimes may be difficult, because of the involvement of several authorities. If it’s a multi-storied building, you need to get clearance from town planning authorities, clearance on design, elevators, fire fighting agencies, etc. Efforts are on to make the process simpler and transparent, though.

How is the sanctioning authority and monitoring authority different in India?

In some states, the Municipal authority is the ultimate monitoring authority

In smaller states and in non-urban areas, the town and country planning corporation acts as the monitoring authority

In urban areas where most of the construction takes place, the municipal authority wields power in giving the final permission and sanctioning drawings and plans. Clearances on electricity, water supply and other utilities come from here

  • The new FDI norms state that the minimum investment has to be USD 5 million for 51% shareholding. Does this include funding of subsidiaries as well?
  • If you have a wholly owned subsidiary by a foreign company then the minimum capitalization norm is USD 10 million
  • If you have a joint venture, the ratio 74:26 or 51:49 is immaterial. For a joint venture, the minimum capitalization is USD 5 million in foreign exchange
  • This minimum amount of foreign exchange is required to arrive within six months from the date of commencement of business. The six months can be used to bring that money into India

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A home loan is a loan taken for constructing a home or buying a home or to do renovation for a residential property. You can get a loan from Registered PSU as well as NBFCs and Banks.

Your home loan is secured loan against the property that you buy. This means that in case you are unable to repay the loan, the lending bank will have the right to take possession of your home.

FAQs

What are the types of Home loans available?

There are a various types home loans available and they are shown as below

  • New Home Purchase Loan
This is the common loan for purchasing a home.
  • Renovation loan - This loan is given for implementing repair works and renovations to your home.
  • Construction Linked loan
This loan is available for the construction of a new home.
  • Land purchase loan This type of loan is sanctioned for purchase of land, for both home construction or investment purposes.
  • Balance transfer (BT) LOAN
Balance Transfer loans help you pay off an existing home loan with a higher interest rate, and avail of a loan with a lower rate of interest.
  • Refinance Loan
This loan helps you pay off the debt you have incurred from private sources such as relatives and friends, for the purchase of your present home.
  • Loans To NRIs This loan is tailored for the requirements of NRIs wishing to build or buy a home in India

What is an EMI?

EMI (Equated Monthly Installment) is the amount payable to the lending institution every month, till the loan is paid back in full. It consists of a portion of the interest as well as the principal. This is deducted monthly from your income

What are the eligibility conditions for a home loan?

To qualify for a home loan, most of the lending institutions in India require you to be:

  1. An Indian resident or NRI
  2. Above 24 years of age at the commencement of the loan
  3. Below 60 or retirement age when the loan matures
  4. Either self employed or salaried

What are the interest rates offered for loans?

Interest rates are different from institution to institution and generally range from about 8.5% to around 14 %. The interest loans in India is usually calculated either on monthly reducing or yearly reducing balance. In some cases, daily reducing basis is also adopted.

Annual reducing:

In this system, the principal, for which you pay interest, reduces at the end of the year. Thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender. This means the EMI for the monthly reducing system is effectively less than the annual reducing system.

Monthly reducing:

In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.

Daily Reducing:

In this system, the principal, for which you pay interest, reduces from the day you pay your EMI. EMI in the daily reducing system is less than the monthly reducing system.

What are the types of rates on loan

What is a fixed rate of interest?

Some institutions have a fixed rate of interest, which means the rate of interest remains unchanged for the entire duration of the loan. This means you do not benefit, even if rates of interest drop in the market. This is commonly used to ensure that your monthly EMI is constant and you know how much money will be deducted from your monthly income

What is a floating rate?

This is the rate of interest that fluctuates according to the market-lending rate. This means you stand the risk of paying more than you budgeted for in case the lending rate goes up. This is also known as dynamic loan and its changes with the change in base rate and as an when its been changed by the banks

What are the other costs that usually accompany a home loan?

Home loans are usually accompanied by the following extra costs:
  1. Processing Charge: It's a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount. The loan amount required by you cannot be less than the processing fee.
  2. Pre-payment Penalties: When a loan is paid back before the end of the agreed duration, a penalty is charged by some banks/companies, which is usually ranging from 1% to 2% of the amount being pre-paid.
  3. Other expenses: It is quite possible that some lenders may levy a documentation or consultant charges.
How do HFCs decide on the loan amount?

Usually, most companies give up to a maximum of 85% of the cost of the house. The 15%, sometimes called 'seed money', will have to be provided by the loan applicant and its varies from institution to institution and from one bank to other bank. The age, income, monthly outgoing and repayment capacity determine the amount, for which the applicant is eligible.

What is the time required for loan disbursement?

On an average, loans are disbursed within 10-20 days after satisfactory and complete documentation and completion of all relevant procedures, including proof that 15% of the cost has been paid upfront to the seller of the property. Ideally one should get the necessary approvals done before the purchase of the property as lot of banks do a pre-approval .

What are the tax benefits of home loans?

Both principal as well as interest of home loans attract tax benefits. With effect from 1st April 2005 (i.e. assessment year 2005-07) under section 80C of the Income Tax Act 1965:

Principal amount of repayment of loan along with other savings such as PF, PPF, Life Insurance premium etc up to a maximum of Rs 1, 00,000/- will be eligible for deduction from gross income.
Interest paid up to a maximum of Rs 1, 50,000/- will be eligible for deduction from gross income on loan after completion of construction will be deductible from income from property