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FAQs - NRI Real Estate


Q1.: What kinds of projects are coming up in Indian real estate that offers a good value to not just NRIs but PIOs and foreigners?
Q2.: Is there any specific target to actually complete your construction development work?
Q3.: How does the automatic route work?
Q4.: What aspects should overseas investors look at in the Indian real estate market to facilitate the suitability of their projects?
Q5.: What are the recommended steps an NRI should follow for getting all the clearances and going about it in a hassle-free way? Whom should one meet in the process?
Q6.: Is it possible to get a one window clearance in Indian real estate?
Q7.: How is the sanctioning authority and monitoring authority different in India?
Q8.: The new FDI norms state that the minimum investment has to be USD 5 million for 51% shareholding. Does this include funding of subsidiaries as well?
Q9.: Do joint ventures call for better possibilities rather than unfair competition?
Q10.: Does that signify that, joint ventures best investment option in Indian real estate development?
Q11.: What two or three major things would you say we do that would catapult the things in the next 5 to 10 years?
Q12.: About Investment Property and Rental Income?

Q1.: What kinds of projects are coming up in Indian real estate that offers a good value to not just NRIs but PIOs and foreigners?
Ans.: The relaxation of FDI in the construction development sector, in March 2006 seeks to give NRIs, PIOs and all foreigners equal opportunity with their Indian counterparts in the Indian real estate sector; and a lot to look forward to. The guidelines set for FDI investment has it that real estate cannot be just bought and sold. For selling it, one has to develop it, construct upon it or fulfil the criteria of one year of minimum development.

NRIs, PIOs and foreigners who were not permitted earlier and needed government approval prior to construction development; can now invest in land, buy it, construct upon it or just develop it, sell constructed buildings or just developed plots. FDI through automatic route can also flow in not just for the housing sector, but also for townships, housing, commercial area, and infrastructure development.

Apart from this, restrictions in terms of minimum area of land, minimum number of units and so on has been done away with. Instead, the standard that has been evolved is in terms of minimum constructed area, for instance, for a construction project, 50,000 sq .mts of construction has to be complied with. Your FSI can help you decide the plot size. For selling developed land, the designated area is 25 acres.

Q2.: Is there any specific target to actually complete your construction development work?
Ans.: The norms are pretty liberal. It sets five years as the time to finish at least 50% of your project from the date of getting all your clearances. In normal circumstances the project can be completed within three years. It helps protect the customer and keeps off fly- by -night people.

Q3.: How does the automatic route work?
Ans.: The automatic route has simplified much of the cumbersome investment process. Approval from the Reserve Bank is not required anymore, and one need not go to Foreign Investment Paper Board leading to easing of paper work. This convenience and easy handling has given a boost to overseas investor confidence for investing in India.

Q4.: What aspects should overseas investors look at in the Indian real estate market to facilitate the suitability of their projects?
Ans.:  Any NRI before investing in Indian real estate should also focus on the particular segment that he plans to invest in - like residential, retail or office space. Consulting legal firms and real estate firms providing NRI services can be very useful for those seeking professional advice. It has to be remembered that the decision will be important as it will have long-term implications.

Q5.: What are the recommended steps an NRI should follow for getting all the clearances and going about it in a hassle-free way? Whom should one meet in the process?

Ans.:  A lot depends on the segment you want to invest in. It helps to gauge the future state and to know what utilities are available if one is eying investment.

1) An office market investment, for instance, requires that you

  • first get in touch with consultants for advice on the city of choice.
  • Your objective, the size of their investments and
  • the returns you are expecting should be clear when starting out.
2) The yield that has evolved from distinct parameters is in the range of 8-8.5% to 12% for office space and 4% to 6% in residential.
3) Whether the land is for investment or set to develop is also a deciding factor, as is the local demand-supply situation.
4) While investing in India, the availability and quality of infrastructure or utilities such as the power situation, connectivity, security facility and long-term future plans need to be scrutinized.

Q6.: Is it possible to get a one window clearance in Indian real estate?
Ans.: Single window in a real estate project in India sometimes may be difficult, because of the involvement of several authorities. In getting a building constructed, if it's a multi-storied building, clearance from town planning people, clearance on design and then lifts, fire fighting agencies etc are mandatory. Efforts are onto make the process far simpler and transparent, though.

Q7.: How is the sanctioning authority and monitoring authority different in India?
Ans.:

  • In some states in India, the Municipal authority has proved to be the ultimate monitoring authority.
  • In smaller states or in non-urban areas, the town & country planning authority acts as the monitoring authority.
  • In urban areas where most of the construction takes place, the municipal authority wields power in giving the final permission and sanctioning drawings and plans. It is the one that demands clearances from electricity, water supply etc.

Q8.: The new FDI norms state that the minimum investment has to be USD 5 million for 51% shareholding. Does this include funding of subsidiaries as well?
Ans.:

  • If you have a wholly owned subsidiary by a foreign company then the minimum capitalization norm is USD 10 million and
  • if you have a joint venture it is immaterial that the ratio is 74:26 or 51:49. For a joint venture the minimum capitalization is USD 5 million in foreign exchange.
  • This minimum amount of foreign exchange is required to arrive within six months of the date of commencement of business. The six months can be used to bring that money into India.

Q9.: Do joint ventures call for better possibilities rather than unfair competition?
Ans.: Healthy competition has always been important and good. However, in the case of FDI, joint venture definitely seems the wiser route to take as it has tremendous scope.

The Indian partner would always be in a better position to provide inputs in terms of information on land and clearances and where the foreign investors can put their money, technology judiciously and opportunities where both together can compliment each other.

Q10.: Does that signify that, joint ventures best investment option in Indian real estate development?
Ans.: Currently, as big foreign investors are foraying into India; their main interests have been in joint ventures. The first couple of transactions or strategies have gone this way and large joint ventures have been struck. Trends show that in the initial years of FDI inflow into real estate in India will come through joint ventures. This will not only help the foreign investors test the Indian markets, but will assure more confidence for business in India.

The current efforts augur well for the coming years of the Indian real estate industry with respect to investment and developments. However, the role of improved infrastructure and fast reform process, better tax rules, computerization of land records and more transparency in the sector cannot be underplayed.

Q11.: What two or three major things would you say we do that would catapult the things in the next 5 to 10 years?
Ans.: The response derived since the relaxation of FDI in the construction development sector has been has been very optimistic. This can be seen as catalyzing investment as it would have a multiplier effect on the economy.

This would include several aspects such as - technology that is going to come in and the associated infrastructure that will be built. It will also have its effect on the development as it will trigger the associated industries such as steel, cement, building material, designers etc. It is also create job opportunities for unskilled, semi-skilled workers, artisans, engineers, architects and the like.

Q12.: About Investment Property and Rental Income?
Ans.:

  • NRIs can freely rent out property, source of acquisition of property not significant.
  • Freely repatriate rental income without prior permission.
  • Tax deducted at source on rental income, freely adjust rental income against home loans.

If loan amount is higher, pay through NRE, NRO and FCNR accounts.

  • Short term Capital Gains - property held for less than 3 years.
  • Long term Capital gains - property held for more than 3 years.
  • NRIs/PIOs can take the advantage of indexing the cost of acquisition and improvement, investing of sale proceeds in special Bonds
  • On deciding to sell the rental property the NRI can apply to the Income tax authorities for the certificate to be deducted at source.




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