Real estate industry being largest employment generator is considered to be a major contributor in the economy growth of developing country. Considering India to be an attractive foreign investment destination, Reserve Bank of India is empowered under Foreign Exchange Management Act, 1999 to formulate and govern real property transactions entered by non-resident Indians and foreign investors. Obligations are imposed upon State authorities to determine residential status of foreign investor under substantial presence test before real estate transaction is documented under State legislation. Investment by foreign investors in Indian real property is preferable to gain high rate of return on investment, due to increase in demand for rental properties, maximum availability of financial support from lenders market, efforts of developers and lender to maintain buyers’ market, and lucrative deals during festive period to ensure closure of real property transactions.
Foreign investments in Indian real property may become complex considering the tax implications on investments and existing regimes affecting activities of real property. Where foreign investors are permitted to acquire Indian real property solely for favorable returns on investments, foreign entities are permitted to acquire real property to carry out permitted business activities of their branch or non-liaison office established in India. Where mobility of funds, entry routes, or financial capacity is considered for approving foreign investments, restrictions are placed on acquisition and transfer of certain kind of Indian real property. Foreign Direct Investments by foreign investors, foreign entities or entities incorporated in India and controlled by foreign investors or entities is permissible in real estate activities subject to certain terms and conditions.
Despite welcoming various investors to participate in Indian real property industry, the question remains as to whether a spouse of non-resident and overseas citizen of India as well as holder of long-term Indian visa holder can acquire real property in India. Recent circular issued by Reserve Bank of India, grants approval to spouse of non-resident and overseas citizen of Indian to acquire only one real property other than agricultural, plantation or farm house land as well as holder of long-term Indian visa holder to acquire one real property for dwelling purpose and one for self-employment purpose subject to certain terms and conditions.
For protection and effective closure of real property transaction, the participation of competent attorney, broker, and chartered accountant is mandatory. Preliminary steps for foreign investors is to verify the title of real property, evaluating market value of proposed real property to calculate the applicable stamp duty and registration charges, verify market standing of developer, survey locality, availability of basic amenities in locality, obtaining stamp papers to record the terms and conditions of sale deed before producing sale deed for registration before the sub-registrar office. Additionally, it is recommended to conduct legal due diligence as well as issue public notice in the national and local newspaper for protecting the right, title and interest of foreign investors by eliminating patent and latent defect affecting Indian real property. Execution of specific power of attorney and ensuring ability to provide substantial financial support in the closure of real property remains vital for Indian real property in repatriating sale proceeds, or refunding forward payments on cancellation of transaction.
Government officials have been a major game changer for the industry in maintaining transparency and strengthening the real property industry by broadening the pool of foreign investors. Initially, foreign investors were permitted to make an investment under automatic route to acquire and transfer real property in India, except in certain circumstance. As on date, foreign entities other than those not registered with Securities and Exchange Board of India are permitted to make 100% foreign direct investment under automatic route in specified sectors or activities of the real property industry. Enactment of SEBI (Real Estate Investment Trust) Regulations, 2014 enabled Government of India to adopt the concept of the real estate investment trust in supporting the real estate industry. With an effort to utilize technology, Government of India ensures digitization of land records, the institutionalization of the real property industry and formation of real estate tribunals by the enactment of the national real estate regime. Promoting investment program against the grant of permanent residence has provided mental security to investors and flowed real property industry with international players.
With the initiative taken by the Government of India, foreign investors are encouraged to participate in the acquisition of real property under the prevailing laws by engaging professional advice. India is one of the most favored investment destinations with growing economy amongst all Asian countries and at the same time having a booming young population as per the last Census records, the real estate sector is expected to grow every year to cater to the growing needs of the country, in turn ensuring that the investments made in Real Estate yield maximum returns.
Disclaimer: This article is to provide a general guide to the subject matter, and not intended to be an advertisement or solicitation for any professional advice. Advice from an expert should be sought for specific circumstances. The author is qualified Solicitor with Masters of Law in International Business Law from London. The author is currently aiming to qualify as United States attorney. The author disclaims all responsibilities and accepts no liability for consequences of any person acting or refraining from acting on the basis of information contained herein.
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