NRIs (being Indian citizens) are allowed to invest in immovable property, without RBI's permission in India. For foreign nationals of Indian origin (whether resident in India or not), RBI has granted general permission (notification, May 26, 93) to acquire or dispose off any immovable property, other then agriculture land/ farm house/ plantation property, subject to certain conditions.

Residential property

The notification gives general permission to foreign citizens of Indian origin.

• to acquire by way of purchase or inheritance

• to dispose off by way of sale Any immovable property, other than agriculture land/ farm house/plantation property.

• to acquire by way of gift, and

• to dispose off by way of sale or gift Any residential property, subject to certain conditions. In case of purchase, the conditions are:

• The consideration is paid out of foreign remittance or out of NRE or FCNR account.

• Purchases of residential property is only for bona fide residential purpose. In case of acquisition by way of gift, the conditions are:

• It is effected between "relatives" (as defined under companies act, 1956).

• In case of persons resident outside India, they can acquire a maximum of two properties, without RBI permission.

• Gift-tax liability has been paid. In either case, a declaration in form IPI-7 with certified copy of conveyance deed and a certificate from bank regarding payment particulars has to bee filled by the purchaser within 90 days of acquisition to the Controller, Exchange Control department, foreign Investment division (III), RBI, Central office, Mumbai.

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Commercial property

Foreign citizens of Indian origin could acquire and sell commercial property in India subject to certain conditions.

• Purchase consideration is paid out of foreign remittance or out of funds in NRE/ FCNR account.

• Declaration in form IPI7 is to be submitted within 90 days to RBI.

• Repatriation (form IPI to be used) to the extent of original investment made shall only be permitted subject to fulfillment of following conditions:

• Property has been purchased on or after May 26, 1993.

• The property is not transferred before three years from the date of purchase deed or from the date of payment of final installment, whichever is later.

• The balance sale proceed should be credited to NRO account. Letting out of the property Letting the property is allowed through the general permission given by the RBI

Repatriation

Repatriation of sale proceeds is permitted with prior approval of RBI, provided

• Such property is purchased on or after May 26, 1993.

• Such sales take place after three years from the date of acquisition or from the date of payment of final installment of consideration, whichever is later.

• Repatriation is limited to the extent of foreign exchange paid for acquisition of immovable property (in case of sale of residential properties, the amount equivalent in foreign exchange paid for acquisition of maximum two properties). Applications for necessary permission for remittance of sale proceeds should be made in form IPI 8 to the Central Office of Reserve Bank of India at Mumbai within 90 days of the sale of the property. Note - An OCB even if it remits fund from abroad, would still require RBI permission to acquire property in India. Real estate business carrying on any business by any person or entity is governed by section 29 of FERA. A notification dated April 27, 1992, in pursuance of section 29(1) has been issued granting general permission to NRIs for acquiring any interest in proprietary/ partnership on a non-repatriation basis. However, one of the conditions laid down by the notification is that the said concern must not be carrying on any real estate business.

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Investment by NRIs in real estate development companies

NRIs are permitted to invest upto 100% in the new issue of equity shares/ debentures of Indian
companies engaged in the following areas:

• Development of serviced plots and construction of residential premises.

• Real estates covering construction of residential and commercial premises including business centers and offices.

• Development of township.

• Manufacture of building Material.

• Financing of housing development.

This facility has been extended to OCBs also. OCBs will also be permitted to repatriate net profit (upto 16%) arising from sale of such investment after the lock-in period of three years.

Note-The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from NRE/ FCNR accounts maintained with banks in India.

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Important factors

Following factors should be considered before investing in India.

• The investment is non-repatriable.

• Arrangement for maintenance.

• Wealth Tax implications

RBI does not welcome any investment in immovable property but the line of demarcation between what may be regarded as a pure investment and a bona fide requirement is very thin. So NRIs can
freely invest in residential/ commercial premises subject to conditions about payment and non-repatriation. Though in the case of commercial premises, carrying on any commercial activity would require permission under section 29 of FERA.

Loans to NRIs for acquisition of a flat/ house

Authorized dealers can grant loans/ overdrafts to NRIs holding Indian passport against security of immovable property proposed to be acquired by them.

Certain financial institutions also provides housing finance eg HDFC, LIC Housing Finance Ltd. 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 account.

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