Even as the rupee has fallen in value, NRIs have turned to real estate as an investment option. But, what are the RBI criteria for NRI real estate investment in India? What is the RBI’s policy on NRI investment? The RBI’s laws on it are likewise rather straightforward, and no prior clearance from it is necessary. Any such property transaction is governed by FEMA. According to the Reserve Bank of India, non-resident Indians (NRIs) do not need prior approval to buy or sell immovable property in India.
As anybody who has done business or been abroad will attest, the government prefers to keep a close grip on monies carried out by the nation. There are valid reasons for this, such as curbing foreign exchange outflows and money laundering. The Foreign Exchange Management Act (FEMA) is indeed a law passed by the Indian government in 1999 to restrict the flow of foreign cash across Indian borders.
In the aftermath of economic changes launched in the Indian market in the early 1990s, FEMA superseded the former Foreign Exchange Regulation Act, or FERA, which was more rigorous. FEMA intends to promote external commerce and payments in India, as well as to improve and sustain foreign exchange inside the Indian market. It describes the procedures, legalities, and enterprises associated with all foreign currency transactions in India. It is critical for Indians working overseas to understand FEMA guidelines for NRIs since they might impact how they transfer and receive cash from India.
Direct Real Estate Investments (Notification No. FEMA 21(R)/2018-RB)
i. By NRI or OCI
|Purchase (other than agricultural land/ farmhouse/ plantation etc) from||Resident/ NRI/ OCI [Reg. 3(a)]|
|Acquire as a gift (other than agricultural land/ farmhouse/ plantation etc) from||Resident/ NRI/ OCI who is a relative [Reg. 3(b)]|
|Acquire (any IP) as an inheritance from||a)Any person resident outside who has acquired it under laws in force [Reg. 3(c)] b)Resident [Reg. 3(c)]|
|Sell (other than agricultural land / farmhouse / plantation etc) to||Resident/ NRI/ OCI [Reg. 3(d) & Reg. 3(e)]|
|Sell (agricultural land / farmhouse / plantation etc) to||Resident [Reg. 3(d)]|
|Gift (other than agricultural land / farmhouse / plantation etc) to||Resident/ NRI/ OCI [Reg. 3(d) & Reg. 3(e)]|
|Gift (agricultural land / farmhouse / plantation etc) to||Resident [Reg. 3(d)]|
- NRI / OCI may acquire residentially and also commercial property • NRI / OCI can provide the property on rent and repatriate funds overseas after payment of required taxes
- NRI / OCI may acquire residentially and also commercial properties • NRI / OCI can provide the properties on rent and repatriate funds overseas after payment of required taxes. They could only inherit such properties.
- They could only inherit such properties. Not in the form of foreign currency notes, traveler’s checks, or other payment methods such as PayPal, Transferwise, and so on.
- Sale revenues can be credited to NRE/ FCNR(B) accounts up to the amount of the initial investment cost of the properties for two years. The excess must be charged to the NRO account. Alternatively, the wholesale earnings might be credited to an NRO account.
- NRI / OCI spouse can jointly purchase immovable property in India although he/she does not have an OCI card (subject to requirements) –
- The continuous churn of properties may constitute the operation of property investment by the proprietary organization, which is forbidden by FEMA Not. 1/2000, dated 03/05/2000, Reg. 4(b)(iv).
ii. PROI has a branch office or other location of the business in India:
- No Liaison Office is authorized.
- Allowed to a) Acquire any immovable property required for it or incidental to carrying on activity; b) Transfer via a mortgage to AD bank as security for any borrowing (assuming the immovable property is obtained following (a) above).
- Reporting: Form IPI declaration must be filed with RBI within 90 days of acquisition.
- PROI from Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Hong Kong, Macau, Nepal, Bhutan, and the Democratic People’s Republic of Korea (DPRK) can only acquire on a five-year lease; otherwise, RBI approval is required.
iii. By Foreign Nationals:
- Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong, or the Democratic People’s Republic of Korea (DPRK), regardless of their residency status, are not permitted to purchase or transfer immovable property in India unless on a five-year lease. This ban does not apply to OCI cardholders.
- Foreign nationals of non-Indian origin who reside in India (excluding the 11 nations listed above) can purchase immovable property. (Non-OCI)
- Foreign persons of non-Indian ancestry who reside outside India can acquire/transfer immovable property in India (Non-OCI)
- on a five-year lease,
- through inheritance from a resident.
The Government of India issued a press release on February 1, 2009, stating that a residence of 182 days plus an intention to stay for an unknown term will be considered. Supporting papers indicate purpose, such as the type of Indian visa granted, and so on.
This Press Release is being issued since it was brought to CG’s attention that foreign persons were purchasing IP unlawfully in several regions of the country, notably in Goa. CG discovered that foreign persons came to India and remained for more than 182 days on a tourist or other visa that was only valid for a specific amount of time, and unlawfully obtained IP in India in breach of FEMA.
Investment through Direct Capital (Notification No. FEMA 20(R)/2017-RB)
i. Repatriable Investment in Prohibited Activities
- Regulation 15: Trading in Transferable Development Rights (TDRs)
- Real estate business or farmhouse construction
Explanation: For this regulation, “real estate business” does not include township development, the building of residential/commercial premises, roads, or bridges, or Real Estate Investment Trusts (REITs) registered & regulated under the SEBI (REITs) Regulations 2014.
- Regulation 16 states that an Indian firm may offer capital instruments to a person residing outside of India, subject to the entry methods, sectoral caps, and attendant conditions indicated.
- Real Estate-Related Industry: Townships, housing, and built-up infrastructure are all examples of construction development.
ii. Construction Development, Townships, Housing, and Built-up Infrastructure Permitted:
100% Automatic Route for Construction-Development Projects Includes township development, residential/commercial building construction, roads or bridges, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure, and township development.
- Each phase of the construction development project would be treated as a separate project;
- The investor would be permitted to exit only after the project was completed or after the development of trunk infrastructures, such as roads, water supply, street lighting, drainage, and sewerage. The project’s completion will be governed by local bye-laws/rules and other state government requirements.
- The project must adhere to the norms and standards outlined inside the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/ Municipal/ Local Body concerned, including land use requirements and the provision of community amenities and common facilities.
- The Indian investee business is only allowed to offer developed plots. For this policy, “developed plots” are plots that have trunk infrastructures, such as roads, water supply, street lighting, drainage, and sewage, installed.
- The Indian investee company is responsible for getting all necessary approvals, including those for building/layout plans, developing internal and peripheral areas, and other infrastructure facilities, paying development, external development, and other charges, and complying with all other requirements as prescribed by applicable State Government/ Municipal/ Local Body rules/bye-Laws/regulations.
- The State Government/ Municipal/ Local Body concerned, which authorizes the building/development plans, will supervise the developer’s compliance with the aforementioned criteria.
- Payment Method: Inward remittances received from overseas via banking channels or from monies stored in an NRE/ FCNR(B)/ Escrow account
- Remittance of capital instrument sale proceeds: Capital instrument sale proceeds (net of taxes) may be transferred outside India or deposited to the NRE/ FCNR(B) [i.e. repatriable] account.
Foreign investment is acceptable in India, but only under certain circumstances. The FEMA Act is a policy statute. As a result, the terminology generates controversies. For NRIs, the system has been effective for several years. In general, they have not encountered any challenges. Assetmonk is a high-yielding real estate investment platform. It is a website that serves as a middleman for NRI real estate investments. It offers high-quality real estate assets at affordable pricing. It saves NRIs time from the inefficient and time-consuming procedure of looking for property in India.
FAQ’S On FEMA Regulations For NRI Real Estate Investment
Penalties for FEMA violations are mostly monetary. If anybody violates any provisions, rules, regulations, etc., the penalty imposed can be up to three times the amount involved in the violation; and if the amount involved in the violation is not ascertainable, the penalty can be up to 200,000.
The National Flood Insurance Program offers insurance to assist mitigate the socioeconomic effect of floods. FEMA manages the National Flood Insurance Program (NFIP), which is supplied to the public through a network of more than 50 insurance firms and the NFIP Direct.