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NRI investors should know the risks involved in making investments in hi-value transactions, by

Asha Nayar- Basu

While advising on high value transactions, I have learnt that location is most important criterion for property search for HNWIs. Besides, government action relating to taxation and lending standards can significantly influence buyers worldwide, including luxury home buyers. For example, in May 2012, President François Hollande stormed into office by promising high taxes for the rich, prompting an exodus of HNWIs to other countries like Belgium, Russia and UK. This made several citizens hesitant to purchase, with apprehension about the direction of the country. 

One of the greatest challenges developers working on luxury residential real estate market face, is in obtaining a clean, bankable title to a contiguous land parcel of sufficient dimensions to develop projects. The present laws are such that it is next to impossible to get 100% clean title for a land parcel of any significant size. The problem is that the law does not have provisions to stop a claimant from approaching the courts at any stage and at any time. The only secure way to get land with a 100% secure title in India was through the Government. However, with the issues that have been raised as farmers went to court at Noida West and Greater Noida, even that route has now become suspect.

The Indian real estate sector has no entry barrier and lacks transparency. Often, buyers make investment decision with a limited understanding of the risks involved in parking their hard-earned money in real estate.

An NRI should be alert to certain realities of Indian realty. Several luxury projects have been mushrooming along near "proposed" infrastructure projects. If the infrastructure project, for whatever reason, does not come up or is delayed, the value of the property may remain stagnant or even fall. Second, all land-sale transactions are registered. However, land title records in India are in a very bad shape. Several land-related transactions such as partition, wills, mortgage, agreement to sell, court order and acquisition are not sometimes registered/or required to be registered. Even when a sale is registered, the history of the title is not completely verified. Unlike most developed nations, which have a system of guaranteeing land titles, India has not even digitized its land records. The lack of clear land titles means all land transactions are risky. If you are buying land, you must trace past ownership to avoid any dispute in the future. Third, delay in getting possession is common in several locations; you can reduce this risk by choosing a developer with a good record of timely delivery. Also, check that all the clearances are in place. Fourth, NRIs must have exit options because they face certain restrictions when selling a property.

There are certain laws every NRI/foreign national interested in Indian real estate should be aware of:

•         Under Section 2 (zed) of the Foreign Exchange Management Act, 1999 ‘transfer’ includes among others, ‘purchase’. Therefore, a foreign national of non-Indian origin resident outside India cannot acquire any immovable property in India by way of purchase. It is also illegal to buy property on a tourist visa. Property cannot be purchased jointly in the name of one eligible person with one non-eligible person.

•         However, a foreign national resident in India does not require approval of RBI to purchase any immovable property in India. This is because once he is a resident in India; he gets the rights like any other resident. This freedom is however not available to citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan.

•         Payment for acquisition of property can be made out of:

•  Funds received in India through normal banking channels by way of inward remittance from any place of India or
• Funds held in any non-resident account maintained in accordance with the provisions of the Foreign Exchange Management Act, 1999 and the regulations made by Reserve Bank Of India from time to time.