Home Financing Guide for NRI Buyers in India

Investment in real estate of NRIs has grown drastically over the last couple of years. With the introduction of RERA (Real Estate Regulatory Act) and GST (Goods and Services Tax), and because of the demonetization effect there is a positive sentiment attached to the real estate companies in Mumbai currently. Real estate developers are now more transparent in their business dealings and people are placing their trust with the builders for realizing their dreams of owning a home. This can also be said in terms of NRIs as we are now seeing a growth in the number of NRI investment options in India. There are also quite a few financing options for NRI’s. Here’s how NRI’s can invest in Indian real estate.

FEMA- Foreign Exchange Management Act
The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India “to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India”. FEMA started after the FERA act was repealed (where it was the previous trade policy that discouraged foreign currency in an economy and insulated the economy from being an open economy.)

FEMA covers three broad areas:
• Rupee convertibility
• Setting up of separate ED (Enforcement Directorate) for trying out criminal offenses in foreign exchange.
• Borrowings by corporate sector.

The other major roles are areas of foreign investment policy and exchange rate determination.

Financial transactions and funding
For any property investment in India, all the transactions should be done in Indian currency through Indian banks. One of the mandates is to have an NRI account in an authorised Indian bank.
An NRI can easily get funding for the purchase if his paperwork is clean. There are several NRI home loan schemes available under different financial institutions in India. Developers in Mumbai like Man Infra and other big names also aid in financing. If you are getting your property funded make sure that you have a minimum of 20% of the value of the new projects in Mumbai to invest from your own sources. You can take funding for a maximum of 80% of the value of the property.

Taxes
Taxes often define how, when and where one can invest in India. For NRIs though, that is also easier. The NRI is expected to pay registration and other service charges at the time of booking the home. Post that, the NRI is eligible for all the same benefits as an Indian citizen. However, if they sell the property within 3 years of purchase, the earnings are then taxable. While if you sell the property after 3 years, NRIs can reduce the long-term capital gains tax by investing in another property.
So, the next time you plan an investment in the Indian real estate industry back home, take a note of all these basic yet useful points.