Month: May 2022

NRIs or non-resident Indians have always played a critical part in the real estate market in India, whether they buy properties as investment or driven by the emotional connect with near and dear ones back home. Either way, the NRI property-buying trend has seen significant propulsion of late, buoyed by the dwindling rupee, there has been a significant increase in the total transactions carried out across the country over the past 16 months, according to surveys by Pioneer Property.

Given the complexities of regulations in this segment, it’s important to keep in mind certain points if you are an NRI on the cusp of taking the plunge in the Indian realty market.

Here, we list a few such points which could serve as a ready reckoner:

# Nature of the property: As an NRI, you are permitted to buy any immovable property in India, with the exception of agricultural land, plantation property or farmhouse. For the latter kind of properties, you will require permission from the RBI and the Union government.

# Tax benefits: As an NRI, you enjoy certain tax benefits while transacting in property in India. Suppose you sell off a property within 3 years of its purchase, the deal will come under the dragnet of short-term capital gains tax, which is to the tune of 30.9%. However, if you wait and sell the same property after 3 years, it will be considered long-term capital gain (around 20.6%) and you can invest the sale proceeds in another property.

# Mode of transaction: As an NRI, you cannot pay for a property in India in foreign currency. You must pay in Indian currency only and for that, you first need to open an NRE (non-resident rupee) or NRO (non-resident ordinary rupee) account in any Indian bank or an FCNR (foreign currency non-resident) deposit account that will safeguard you against fluctuations in forex rates. NRIs can also apply for home loans if required. However, the repayment has to be made in Indian currency only, from any of the above-mentioned account types.

# Home loan: All Indian banks and housing finance companies registered with the National Housing Bank are empowered by RBI to disburse loans to NRIs for purchase of residential real estate in India. As mentioned in the earlier sub-head, the loan amount will be sanctioned and has to be repaid in the same currency. The only catch is that the loan amount, instead of being directly credited into the NRI’s bank account, will be disbursed to the developer’s or the seller’s account. The loan can be repaid by the NRI using his/her NRO/NRE account or FCNR deposits.

# Power of attorney: Any NRI has the privilege to give PoA to friends or relatives residing in India to complete the transaction process regarding purchase of a property in India on his/her behalf. The PoA can apply to umbrella access or specific rights that can be exercised by the NRI’s representative.

# Verifications: Before settling on a property for purchase, as an NRI, you should do a meticulous due diligence exercise on the developer’s track record, talk to residents already staying there (in case of a gated community) and look at all your available options in your preferred location, before you zero in on your choice.

# EMIs and Forex: While it is easy to repay loans through EMIs, you could be hit hard by fluctuations in foreign exchange rates. If you can use the rental income for payment, it offers a critical and convenient safety valve against forex market uncertainties.

# Repatriation of funds: For repatriation of funds to the foreign country, you will have to adhere to certain guidelines set for NRIs. A person of Indian origin (POI) or an NRI is entitled to repatriate the entire proceedings from the start of the process of sale of a property. However, the property purchase in India has to be done following FEMA (Foreign Exchange Management Act) directives applicable at the time of purchase and the repatriated amount cannot exceed the original amount as submitted.

As an NRI, if you factor in all these points and with the added insurance of RERA and also GST, there are ample in-built checks and balances in the Indian real estate market now to give you comfort and peace of mind while investing. With the general outlook in the realty domain looking very bright in the post-pandemic scenario, the NRI segment’s share of this burgeoning pie is sure to grow consistently, market watchers concur.

The Real Estate Regulations Act or RERA was introduced by the Centre in 2016 to safeguard the interests of home-buyers by protecting them against the malpractices of certain dishonest developers which had once eroded consumer confidence and given a bad name to the entire industry.

Some of the primary objectives of the Act are:

# Safeguarding interests of allottees and ensuring their responsibility

# Ensuring all-round transparency and thus, minimizing chances of fraud

# Rolling out a countrywide uniformity of standards and foster better professionalism

# Ensuring transparency of communication between developer and buyer

# Making the developers and investors assume greater responsibility

# Boosting confidence among buyers in the real estate sector as a whole through built-in checks and balances

What about West Bengal?

While all the other states had adopted RERA from the word go, West Bengal was the only state which enacted its own version of the regulation, terming it the West Bengal Housing Industry Regulation Act or WBHIRA. However, later, it has agreed to implement the central registration in the state with a couple of riders – one, to protect the builder against “any unforeseen circumstances” preventing him from fulfilling the contract like “war, drought, flood, fire, cyclone, earthquake, etc and two, a garage is defined by any parking space sanctioned by the government without the compulsion to provide a roof and three walls as mandated by RERA.

What are the main benefits of RERA for the consumer?

# Standardized definition of carpet area: Earlier, there was no uniform guidelines for measuring carpet area, and home-buyers often felt shortchanged. Now, for the consumer’s peace of mind, the standardized definition of carpet area is “the usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment”. This has made it impossible for developers to mislead buyers, thus inspiring confidence.

# Interest rate on default: RERA has ensured parity of interest rates for both seller and buyer in case there is delay in delivery of a property by the former or a payment default by the latter. Earlier the scenario was lopsided and loaded in favour of the developers since they paid less rate of interest in case of delay in giving possession, while the buyer was subjected to a higher penalty in case of any payment default. Now, the rate of interest payable by both parties must be the same and is determined by prime lending rates of SBI plus 2%.

# Protection against builder bankruptcy: Earlier, developers often used to divert funds raised from customers of a certain project to finance other developments. RERA mandates that the builder has to deposit 70% of the amount realized for a particular project in a separate escrow account and can withdraw money from this account in phases of construction which are completed and certified by a civil engineer, an architect and a practising chartered accountant. This is also designed to ensure timely completion of the project.

# Protection against false promises: The interest of the buyer is now protected by this legislation since she/he reserves the right to withdraw from the project and is entitled to a full refund of any advance payment in case of any inconsistency regarding commitments made by the builder and the actual project delivered.

# Cap on advance payment: According to the provisions of RERA, the developer cannot seek an advance payment or application fees of over 10% of the cost of the property before execution of the agreement for sale.

# Protection against defects: The buyer now has the peace of mind while buying a RERA-certified property, stemming from the assurance that any structural defect or defect in terms of quality, workmanship, provision or service, detected and reported within 5 years of getting possession of the property, will have to be fixed by the developer free of cost within a month.

# Insured against delay: In case the developer fails to complete and deliver the project on time, the buyer can either pull out of the project with full refund along with interest payable from the completion due date till the refund of the amount, or stay with the project till completion and seek compensation along with interest accrued from the due date till actual date of completion.

# Protection against defect in title: In case you stumble upon any defect in the title of the property you purchased, you are entitled to compensation from the developer, and there’s no time limit for seeking this compensation.

# Grievance redressal: The buyer has the leeway to take up any grievance with the state authority formed under the auspices of RERA, which is vested with the power to redress any such grievance. In case the buyer wants to escalate the issue, it is possible to take the grievance to the appellate tribunal which is mandated to redress the grievance within 2 months. If it can’t resolve the issues, it is supposed to record the reasons for the failure.

# RERA registration a must: Every single project which has a carpet area of over 500 sq m or a minimum of eight units, will need to have RERA registration before it can be marketed. To obtain such registration, the developer must comply with all the mandatory guidelines set in the legislation.

The decision to buy a house or an apartment is one of the most significant ones that we make during our life’s journey, and it evokes a maelstrom of emotions from elation to excitement to trepidation and anxiety and of course anticipation. For most people, this is the single largest investment they would make in their lifetime. So there’s an inevitable adrenaline rush, and it’s quite possible that in this blur of excitement and anticipation, you could forget to factor in the extra expenditure that comes as a corollary to buying a property. So here is a handy checklist of extra cost heads for your ready reference:

# Stamp duty: This is a mandatory levy payable to the state government on any property transaction. Stamp duty validates the sale agreement and is the official document of transaction that makes the property legally yours. The rate of stamp duty on property transactions varies from state to state in a band of 4 to 7% of the property value. So if your property value is around 50 lakhs, you will need to fork out another 2 to 3.5 lakhs as stamp duty.

# Registration fee: In addition to stamp duty, the government levies a 1% registration fee for registering the property in the buyer’s name. So you pay Rs 50,000 if your property cost is 50 lakhs.

# GST: In case you are purchasing an under-construction property, you will have to pay a goods and services tax, which varies according to the property price bracket. If your property falls within the affordable housing segment, priced below Rs. 45 lakhs and less than 60 square meters in metros and 90 square meters in non-metro locations, you will have to pay only 1% as GST. If not, the levy shoots up to 5% for residential properties. For commercial spaces, the GST is 12% on outright sale.

# Electricity charges: The developer charges the buyer for creating the infrastructure for external electrification for the entire complex as well as to bring power to your apartment. As a buyer, you will also have to pay for the meter installed and to the power distribution utility an amount towards application charges.

# Legal charges: A developer will charge the buyer legal fees for executing the sale agreement and the final conveyance deemed between the two parties. It’s a fixed one-time cost payable at the time of purchasing the property.

# Power back-up charges: The developer will charge fees to arrange for diesel generator backup in case of any power outage. The amount is charged either by KVA or is a fixed lumpsum amount.

# Preferential location charges: Sometimes developers slap an extra charge on any apartment or unit within the same gated complex for its better situation, which could be a lake-view or lawn view, or south-facing, or a showpiece villa with a porch and garden, a top-floor penthouse or any such “plus” that differentiates or enhances the value of that unit. This charge is not fixed by any parameters but guided more by the brand’s currency in the market.

# Floor escalation charges: For any high-rise property, there is an escalation of per sq ft charges as you go up higher. This is usually determined by the strength of the location or the brand equity of the developer, and is charged on per-sq ft, per-floor basis.

# Parking fees: Your parking space doesn’t come free in any housing complex. The developer will charge a one-time amount for your slot or collect periodic parking fees. If you have a second vehicle, you will need to buy or lease a second parking slot and so forth.

# Deposits:
a) Maintenance deposit: Developers usually collect an advance maintenance deposit of 1 to 2 years to take care of the upkeep of common areas like parks, elevators and stairways, electricity, security and housekeeping, etc. This is an insurance deposit to safeguard against possible damages. The charges go up according to the number of amenities provided. For instance, if the housing society has a club and its usage is included in common area maintenance (CAM) charges, the deposit amount is likely to increase.

b) Sinking fund: The developer charges a one-time amount as fixed deposit from every consumer in a project as a sinking fund which is kept aside for major unforeseen expenses in building repairs, fire, or other accidents/structural damage from natural calamities.

c) Municipal deposits: This is an advance charge levied by the developer to take care of property taxes, which are usually charged on per sq ft basis, till the mutation of the respective units is completed.

Identifying your dream home and making the dream come true is fraught with potential pitfalls and demands an intensive due-diligence exercise at your end. It’s a whole detailed process to ensure a seamless transaction and the raft of tasks would comprise fixing a budget, identifying a location, seeking out a reliable real estate developer or agent, negotiating the price, organizing and scrutinizing all the necessary documentation, picking an apt home insurance, and other things. Here is an overarching checklist that might be of help:

# Location: This is the only thing you can’t change once you have purchased a property. So choose your location carefully and after a detailed assessment of the area. Accessibility should be your primary concern before finalizing a home. You must take into consideration commute time to work, whether there are enough market and other retail options at arm’s length, schools and other educational institutions, medical facilities, etc. Most importantly, talk to local residents to get a clearer picture of the safety and ease of living in the locality.

# Check the title documents: You should be looking out for documents like government grant order, sale deed, succession certificate, nature of the title (leasehold, freehold or development right), development agreement and power of attorney, information on pending litigation, if any, and having access to original title documents, stamped and registered.

# Verify seller’s identity: Specifically look for documents to establish the seller’s identity and credibility, like PAN, Aadhaar, passport, IT returns, salary certificates, etc if an individual seller. In case of a jointly held property, the identification of all the sellers is required. If the seller is a company or partnership entity or trust, the constitution documents will be required to make sure it has the right to own and transfer the property.

# Land-use and conversion: As a buyer, you need to scrutinize the master plan to confirm that the property has been developed as per the zoning plan like residential, commercial, industrial, etc. If there is any change of land use, the required permission from the appropriate town planning authorities is a must.

# Approvals for construction: As someone buying an apartment or land with some construction, you need to study the building or layout plan which was sanctioned by the local civic body, besides other government approvals and those issued by statutory and regulatory authorities pertaining to power, water, sewage, fire safety, green clearance, etc.

# Certificate of occupancy: As a buyer of a property, you must insist on the occupancy certificate from the competent authority before taking possession. This document is absolutely critical since without being in possession of the occupancy certificate, you are liable to action and penalty under building bye-laws, and even the risk of demolition.

# Property tax status: You must also ensure that the seller has cleared all property tax payments till date and there’s nothing pending. This you can verify with the municipal authorities. Unpaid property tax or utility bills erode the marketability of the property. So make sure you obtain all the relevant documents before taking possession.

Encumbrances: It’s absolutely imperative to verify with appropriate authorities if the property you are buying is free of all burden or encumbrances. This can be done at the jurisdictional sub-registrar office or with the ministry of corporate affairs, if you are buying from a corporate entity. This is an important safety valve and you must plug it before completing the transaction.

# Physical survey: You must conduct a physical survey of the property to confirm all the physical parameters and measurements professed. You can also take the help of a professional surveyor for this.

# Compliance under RERA: The Real Estate (Regulation and Development) Act, 2016 or RERA makes it mandatory for all developers to register their properties under this Act. As a buyer, you can visit the RERA portal to check if the property is registered under the Act and if there are any cases or complaints pending against the developer. This will enable you to check on the credibility of the developer and then take an educated decision. Here, it’s important to know that all real estate agents too must also get registered with the state arm of RERA. Once you have the comfort of the RERA umbrella, you are a lot more reassured.

# Check for outstanding documents: In case you are buying a second-hand property, it’s extremely crucial to check on the loan status. In case of any outstanding loan amount, make sure the seller clears all dues before handing over the property, or else you must get hold of the original property documents from the bank before you get the property registered in your name so that you can pay off the balance amount without complications. If the seller is clearing the home loan dues, make sure to obtain a “no dues certificate” before completing the transaction.

# Assess the property price: You must do a proper research and market analysis to figure out price trends in the area. Talk to a reputed and qualified agent to understand the history of market ups and downs in the area so that you can confirm that your property will appreciate. You can also calculate potential return on investment in future, based on educated inputs.