5 Problems Faced By NRIs When Buying Property in India

As an NRI investor looking to purchase property/properties in India, the objective is as rooted in practicality, as it is in sentimentality. For some, it may be a matter of eventually returning to their roots. Most of them intend to earn maximum returns on their investments – either by keeping the property vacant, and waiting for the value to appreciate or by renting it out to tenants in the interim.

Being based overseas, the foremost concern for NRIs purchasing property in India is the problem of distance. Almost all other issues and concerns that an NRI must deal with, can be derived from this fundamental problem.

Let’s take a detailed look at these problems faced by NRIs when purchasing property in India.

5 Problems Faced By NRIs When Buying Property In India:

As much as the advent of technology has made it easier to conduct business across time zones when it comes to matters involving heavy money, nothing beats the security of proximity. And this is primarily what plagues an NRI’s property investment in India.

Here are some of the issues NRI investors have, attributable to the fundamental lack of proximity while purchasing property in India:

1. Lack of transparency:

The ‘enclosed’ nature of the real estate business in India, along with the lack of information, is often stated as a reason why NRIs are scared of investing in real estate in India.

The lack of a trusted platform for due diligence on Indian real estate problems is a major challenge that NRIs cite for their hesitation in purchasing property in India. This is also a reason why NRI investors have to depend entirely on a real estate broker, or family and friends for any information on the ground reality of the property.

2. Issues With Property Development:

Since NRI investors are situated overseas, it isn’t easy for them to keep track of the development of the property/properties they have invested in, especially those under construction. The problems faced by NRIs in this respect are as follows:

• Unexplained project delays
• Inappropriate information regarding project completion
• Fraudulent builders/property dealers
• Poor quality of delivered projects
• Differences in the property demonstrated and actually developed

These above issues are to a certain extent been addressed by the Real Estate Regulation and Development Act of 2016 (RERA). You can read about it in detail from here.

3. Land Grabbing Issues:

Another common problem faced by NRIs is the issue of land grabbing or illegal possession and sale of a property. There have been cases where people have impersonated NRIs and carried out transactions. These people usually claim to be relatives or friends of the NRI owner and present forged documentation – including the Power of Attorney.

4. Lack Of Clear Titles:

In many cases, the person who sells a property to an NRI provides only a photocopy of the title deed – this could either be because the property was pledged or because there are several owners. The absence of a clear title could result in the sale being challenged in a court of law.

5. Lack of Knowledge of Rights:

In cases where the property/properties have been let out, NRI owners are often lost in translation – so to speak, owing to the lack of knowledge regarding their own rights as owners of the property, as well as the tenant’s rights in India.

To address these hurdles that NRIs face while trying to purchase property in India, the Government has undertaken some key policy changes in 2016.

These changes are reflected in:

• RERA (Real Estate Regulation Act)
• GST (Goods and Services Tax)
• Benami Transactions (Prohibition) Amendment Act, 2016

Let’s take a look at how these policy changes aimed at making it easier for NRIs to purchase property in India.

Impact of Policy Changes on An NRI’s Decision To Invest in Property in India:

RERA seeks to bring clarity and fair practices that would protect the interests of buyers and also impose penalties on errant builders. Here’s how it intends to solve the most pressing concerns of NRIs looking to purchase property/properties in India. (source)

1. Assured, Timely Delivery of Property:

Before RERA, builders invariably failed to deliver their projects on time, because they would either divert the funds to another project, or they would sell the projects without following the necessary statutory regulations. Such delays led to price escalations, which would lead to buyers being on the losing end of the transaction. After RERA, it is now mandatory for the builder to keep 70% of the buyer’s money in a separate account. The money from this account will be used solely for the construction of the buyer’s property. If the builder fails to deliver the project on time, he will be liable to pay the money back with attached interest.

RERA has also declared that developers will not be able to ask more than 10 per cent of the property’s cost as an advanced payment booking amount, before actually signing a registered sale agreement.

2. Transparency:

Builders will no longer be able to withhold essential information from buyers, nor will they be able to deviate from the project by compromising on essential amenities and space. RERA has made it mandatory to furnish all the relevant information about the project on the builder’s website as well on the RERA website. This information includes:

• Layout plan with specifications of the project
• Number of homes for sale
• Government approvals
• Status of land title
• Details of all the intermediaries
• Subcontractors’ names
• Schedule for completion (deadlines)
• Payment schedules
• Project updates

Once a project has been approved, the builder will not be allowed to make any changes without the written consent of at least two-thirds of the allottees. All the details provided by the builder will have to be certified by a Chartered Accountant.

Most importantly, the NRI buyer will be able to access all the information related to the project he/she has invested in by accessing the website. No longer will an NRI buyer have to worry about following up with the builder incessantly.

3. Quality of Projects:

RERA will provide protection to buyers for 5 years from the date of possession in this respect. If the buyer highlights any problems to the regulator in this period, including in the quality of construction and the provision of services, the property developer will have to rectify the same within 30 days.

4. Legality of Projects:

Property developers will not be able to advertise, sell, offer market or book any plot, apartment, house, building, investment in projects, without first registering it with the regulatory authority. Furthermore, after registration, all advertisements inviting investments will have to bear the unique RERA registration number. The registration no. will be provided project-wise. This will ensure that the projects NRIs invest in are legal.

Besides RERA, there are other policy changes that will also resolve the issues that NRI investors face when purchasing property in India.

The Benami Transactions (Prohibition) Amendment Act, 2016 has been formulated to deal with ‘benami’ transactions – transactions where the property is owned by one person and paid for by another, or a property purchased under a fictitious name. All such properties will be confiscated by the central government. For NRI investors, this Act will bring in more clarity in terms of ownership, or title of a property. (source)

Similarly, the GST (Goods And Services Tax) aims at eliminating the difference in indirect taxes applicable across various states in India, by introducing a single-tax regime. The existing channels include issues of multiple taxations amounting to indirect taxes and no uniformity. (source)

The introduction of the above-mentioned policies in India definitely aims at making it easier for an NRI to invest in property in India. However, the challenges faced by an NRI owner don’t end there. Managing and maintaining the property/properties from abroad can also be an immense challenge. What NRI owners need is a solution to their property management woes – A Property Management Service!

Property Management services are designed to take care of all the daily operations of an NRI’s real estate investments. The property manager, or a real estate portfolio manager, assigned by the service will handle it all – right from the upkeep of vacant properties, to handling the ones occupied by tenants, from dealing with tax-related and legal issues to the periodic inspection and maintenance of the properties.

If you are looking for a dependable, real estate portfolio manager – Get in touch with Homzhub today!