A wise man once said,
“Don’t wait to buy real estate. Buy real estate and wait.”
Fancy advice, ain’t it? But very true as well. For an NRI investor that buying and then ‘waiting’ could mean either to keep it vacant and allow the value to appreciate to be able to sell it later, or to let it out and earn regular returns through rent.
Whatever the case may be, an NRI investor must first be well-versed in the process of purchasing and selling a property. Since he/she is abroad, it may be difficult to be physically present during all the actual transactions. But, it is definitely important to know the steps involved in the process.
To make it easier for an NRI investor, here’s a detailed guide outlining the process of buying and selling a property in India.
Buying And Selling Property In India: Guide for an NRI Investor
Before buying property in India, the NRI investor must first carefully consider the various factors that influence the decision such as the type of property he/she can invest in, the regulatory framework governing property transactions, available finances, tax benefits, etc.
Having thought about these points, it is necessary to follow the steps below:
1. Find A Realtor:
A realtor has all the right information about the various properties available for sale, as well as other details pertaining to the real estate market. Choosing the right realtor is important since he will be responsible for making sure that you find a property that suits your requirements – including whether you seek a new one from a developer or a resale one.
2. Identifying The Property:
As mentioned earlier, NRI investors need to be sure about the kind of property they are allowed to invest in, legally. Additionally, they need to communicate exactly what they need in terms of the amenities, dimensions, layouts, furnishings, etc. It is also important to evaluate the various areas where they might be interested to purchase the property – the location of a property plays an important role in determining the amount of rent an NRI investor could earn from, as well as the potential resale value.
This also includes checking if the property is developed, or is in the process of being developed/under construction.
3. Budget And Finance:
The most important factor while purchasing property, it is important to be clear on the budget you have earmarked for the same, as well as the sources available for funding the investment. An NRI investor can avail housing loans like an Indian Resident. The NRI investor must be aware of all the additional costs involved in the process such as stamp duty, legal fees, brokerage fees, property tax, etc.
4. Legal Diligence:
Whether you are buying a secondary property or a property that has been newly constructed, it is important to make sure that the developer or the seller has the title of the property (the right to sell). Here are a few factors you need to check:
- Check the sanction plan of the project and that the development is legal (compliance with RERA).
- Make sure that the property bye-laws are applicable in the area and that there are no violations on the seller’s part.
- Make sure to take NOCs (No Objection Certificates) from the concerned authorities for water and electricity.
- Check all dues and tax liabilities.
5. Study The Payment Procedure:
The process of making the payment depends on the developer and the type of property being purchased. If it is a resale property, you may be expected to make a lump-sum payment or as per the terms decided between the buyer and seller of the property and the duration within which the transactions need to be completed. For a property under construction, you may opt for a payment plan as per your convenience – you could make a down payment first and pay the rest through instalments.
6. Allotment Letter:
Once the booking amount has been paid, the buyer will receive an allotment letter outlining all the important details of the property such as the flat number, floor, dimensions and other charges. It is issued by a developer or the housing authority.
The registration of property in India has become simplified, after the introduction of a computerised process for the same. While the process offers some respite from middlemen, and also provides transparency in the valuation of a property, some manual paperwork may still be needed. The process involves paying the stamp duty and a registration fee for the sale deed, along with registering the necessary documentation with the sub-registrar of the area.(1)
The process also depends on whether you are purchasing the property directly from the developer or if it is a secondary sale of the property. If you are buying it from a developer, these details are taken care of by the developer. In the case of the latter, it will involve stamp duty and the registration of a transfer deed. Let’s take a closer look at the registration process.
- Verification of the title of the property: It is easier to conduct due diligence in the case of a secondary sale since the earlier owner will have all the necessary documentation. The obligation for the verification of the title to the property rests with the buyer, prior to the registration.
- Estimating the value of the property: The amount of stamp duty to be paid depends on the value of the property. The stamp duty is calculated as a percentage of the higher of the following amounts:
- Actual price paid for the property
- Circle rate* in the area
*Circle rate is the minimum value at which the sale or transfer of a plot, built-up house, apartment or a commercial property can occur.
- Preparing the stamp papers: Once the value of the property has been determined, the buyer must now purchase non-judicial stamp papers equivalent to the value of the stamp duty, either online or from licensed stamp vendors.
- Preparing the sale deed: The sale deed is prepared by an attorney on behalf of the buyer, the subject of which varies on the basis of the transaction such as the lease, mortgage, power of attorney, etc.
- Payment of stamp duty and registration charges: Once the stamp papers are ready, the stamp duty can be paid to the collector of stamps.(2) The registration fee needs to be paid prior to the registration.
- Approach the sub-registrar for registration: The sale deed has to be registered with the sub-registrar. The buyer will have to take along two witnesses, and all are expected to carry proof of identification.
- Submission of additional documents: Along with the sale deed, the buyer will also need to submit additional documents such as the proof of identity, proof of address, DD/cash for the payment of stamp duty, photographs of the parties involved, etc.
- Completion of the registration process: Once the process is completed, the duly registered documents can be collected. The sub-registrar will keep a copy of the documents with himself/herself.
Selling Property In India
For an NRI investor, selling a property from overseas is as challenging as purchasing one. If an NRI intends to sell the inherited property, he/she will need legal assistance. While the process is almost the same for Resident Indians as well as NRIs, the latter have to deal with tax implications and repatriation policies. Let’s take a look at the factors involved in the process of selling a property in India.
1. Transfer Of Title:
If the property is inherited, the title needs to be transferred to the seller. This transfer needs a will or a succession certificate. This can be done through mutation (transfer or change of title entry) in the revenue records of the local municipal corporation. (3)
2. Checklist Of Documents Needed:
To be able to sell property in India, the following documentation is mandatory.
- Passport, as proof of identity
- PAN Card or Form 60 for the purpose of tax exemptions
- Address Proof
- Allotment Letter
- Sale Deed
- Tax returns – if an income is accruing from the property and the same is taxable, tax returns should be maintained
- NOC and other documentation related to the society
- Encumbrance certificate (a mandatory document used in property transactions as an evidence of free title/ownership)
- POI or OCI Card
- Occupation certificate issued by the municipal corporation
3. Find The Right Brokerage Firm:
An NRI investor may not want to reveal his/her financial information to friends and family in India. Additionally, they might not have the expertise to advise the NRI on legal as well as practical matters pertaining to selling a property. Hiring a brokerage firm to assist in the selling process can help the NRI understand the market better, understand price trends, find the right buyers, apply for the necessary legal help, along with other details. It is important to note that brokerage firms in India are not licensed entities, and this could create some nuisance for the NRI investor.
4. Sale Registration:
It is essential to grant the power of attorney for this transaction to a PoA holder. There is no need to grant a complete power of attorney – the NRI can give ‘Admit PoA’ rights to the PoA holder who will merely represent the owner in the registrar office. According to this, the NRI should duly sign all the documents and the PoA holder will represent him in the sale registration.
Once the registration is complete, the NRI should focus on the tax implications and the repatriation policies.
5. Taxation and Tax Exemptions:
An NRI who sells his/her property after three years of its purchase will incur capital gains tax at 20%. (4) In case of an inherited property, while computing the long-term capital gains, the cost to the previous owner (i.e. the person from whom the property is inherited) would be considered as the cost of purchase.
Although NRIs are subjected to a Tax Deducted at Source (TDS) of 20% on the long-term capital gains, there are certain instances when an NRI can get a waiver. One such case would be if the NRI is planning to re-invest the capital gains in another property or in tax-exempt bonds.
If an NRI sells the property before three years of purchase, short-term capital gains tax is imposed at a TDS rate of 30%. But, he can apply to the income tax authorities, from where he holds the PAN, for a tax exemption certificate under Section 195 of the Income Tax Act, along with the proof of reinvestment of capital gains.
An NRI gets two years’ time to invest in another property and up to six months if he chooses to invest in bonds. If the NRI is planning to buy another house, the payment receipt or allotment letter needs to be produced and an affidavit is needed if capital gains bonds are bought.
In case an NRI sells a residential property after three years of purchase and reinvests the money in another residential property within two years from the date of sale, the profit generated is exempted to the extent of the cost of the new property. However, NRIs can’t use the proceeds of the sale of property in India on a foreign property and still claim the exemption.
6. Repatriation Policies:
The existing FEMA regulations permit an overall remittance limit of USD 1 million from an NRO account for bonafide purposes. This remittance limit is available to an NRI or PIO for each financial year. The sale proceeds of a property in India can thus be credited to the NRO account & be further remitted under the overall USD 1 million limits. (5)
Buying and selling a property in India can be stressful for an NRI investor to manage from overseas. What he/she needs is a one-stop solution for all his/her property woes – right from deciding if a property is worth buying, whether it should be kept vacant or let out, to screening and choosing the right tenants, upkeep of the property, managing taxation and legal matters and making sure the NRI gets the best returns out of the property. What an NRI needs is a Real Estate Portfolio Manager!
If you are an NRI investor looking to purchase a property and employ a real estate portfolio manager in India, get in touch with Homzhub today!