NRIs and Real Estate

Valli Palaniappan

For this issue, we have requested Sethuraman Sathappan, Assistant General Manager, India Operations, Scotiabank, India, to discuss about the opportunities available for Non Resident Indians (NRIs) in the real estate sector. He is a regular columnist on the Tamil news daily, Dinamalar, reviewing stock markets and answering questions pertinent to export/import.

He has written several business articles on Tamil magazines such as Kumudham, Thozhil Ulagam, and Maratiya Murasu. He has penned three Tamil books on exports and authored/co-authored books in English for children and expatriates, which were published by Citi Bank.

In the article below, he discusses with us about the investment options open for NRIs, the leasing and selling of the purchased property, repatriation and tax implications, and the ways to deal with the property purchased before one has become the NRI or acquired through gift or inheritance.

You may find his view on what nagarathar NRIs can do—especially for parents and elders of NRI nagarathars who live in India—interesting. He makes an earnest request to NRIs building a city near Chettinad area. He calls such a city =Nagarathar City‘ and dreams of that city having all the modern amenities you can think of.

Get excited? Read on the article and tell us if it was useful to you as an NRI, what you think, and what would like us to talk about in the next issue, and so on. Please reach us through www.achi.org or support.nanal@achi.org. We will publish your views on Letters to the Editor. Refer to Page 2 of this issue for more information on the Letters to the Editor.
 

 Sethuraman Sathappan
Assistant General Manager, India Operations, Scotiabank, India

Normally, the bull run happens in stock market only. But the real estate sector witnessed an unprecedented bull run between 2005 and 2008. It may be one of the longest bull runs, the country has ever witnessed.
The primary reasons attributed to the such a sustained growth of Indian real estate are the steady growth of the overall Indian economy, upward rise of average household income, and competitive interest rates for housing loans.
Though the sector was weak due to global meltdown, it has already started inching up. NRIs currently residing in countries like U.S.A, U.K, and gulf nations have many investment avenues in their respective nations, but those options may only provide a low yield in comparison to investment in a growing country like India and especially in real estate sector. Just to quote an example, an investment of Rs. 100,000 in a Chennai property in 1992 would have fetched Rs. 700,000 in 2010 compared to the same investment made in stock, gold, and silver would have respectively yielded Rs. 350,000, Rs. 360,000, Rs. 300,000. This is one easy comparison by which we can easily make out that real estates, in the long run, yield good returns.
 

Real Estate Investment Options

NRIs have couple of options to invest in real estate in India:
1) Purchase either a residential or commercial property, or
2) Invest in unlisted real estate companies through private equity funds operating in India.
NRIs are not allowed to invest in agricultural land, plantation property, or a farm house. There is no restriction regarding the number of properties that they can buy, but repatriation of sale proceeds is possible for at most two properties.
Mode of Payment
NRIs make payment for purchase of residential / commercial property in India out of funds remitted to India through normal banking channel or funds held in any of the NRI-designated accounts such NRE, FCNR (B), NRO account maintained in India. No payments may be made either by traveler's check or by foreign currency notes. Also, no payment may be made outside India.
Repatriation
NRIs may sell, at any time, sell the immovable that they purchased and may repatriate the sale proceeds back, but certain conditions apply.
*If the property was acquired out of foreign exchange sources, the amount to be repatriated should not exceed the amount originally paid for the property. Capital gains, if any, may be credited to the NRO account from where the NRI may move an amount up to US $1,000,000 per financial year, but subject to the satisfaction of tax compliance and authorized bank/dealer.
*If the property was acquired either through rupee sources or through gift, the sale proceeds may be credited to the NRO account only. NRIs have an option transferring up to US $1,000,000 per financial year to foreign currency, but subject to the satisfaction of tax compliance and authorized bank/ dealer
* if the property was acquired through inheritance, NRIs repatriate the sale proceeds up to US $1,000,000 per financial year, on production of documentary evidence in support of acquisition / inheritance of assets subject to completing tax formalities.
Property Leasing
NRIs may rent out the property without the approval of the Reserve Bank of India (RBI). Any rent received can be credited to NRO or NRE account or be remitted abroad.
There are tax benefits as well on leased out properties. A standard deduction of 30% on such rental income is taken toward the upkeep of the property irrespective of the actual amount spent.
Property Purchased as a Resident Indian
An NRI who purchased immovable property when he was a resident can continue to hold that property—residential, commercial, agricultural, plantation, or farm—in India without the approval of the RBI. However, the sale proceeds may be credited only to an NRO account. As far as repatriation of sale proceeds is concerned, it is treated exactly as the property acquired as an NRI through rupee sources.
What Nagarathar NRIs can do?
The primary concern for NRIs is effectively managing and maintaining the properties purchased in India. Currently, maintenance happens through their friends and relatives; however, it has been the experience that such arrangements miserably fail due to factors such as dishonesty, distrust, mismanagement, and suboptimal level of communication. Besides, they lead to tensions between friends and relatives and create bruises on their relationships.
A potential alternative for NRIs—especially for nagarathar NRIs—is to join together and procure a property (of about 50 to 100 acres) near Chettinad area, and build a =Nagarathar City‘ that is completely self-sufficient with adequate infrastructure and day-to-day amenities such as utilities, hospitals, schools, colleges, shopping centers, sporting grounds, and meeting halls.
Such a dream city could have an exhibition centre to showcase our rich Chettinad culture and can serve as a touring spot.